Why Some Acquisitions Do Better than Others: Product Capital as a Driver of Long-term Stock Returns

April 2007 | Sorescu, Alina

Corporate acquisitions are strategic actions that loom large in the minds of many senior managers. Despite decades of study, little systematic research exists on a central question: Why do the acquisitions of some firms perform better than those of others? The work that has examined this question has mostly focused on deal-specific variables, i.e., how the acquisitions are conducted. In this paper, we highlight a firm-specific, marketing-driven variable – product capital – that impacts acquisition performance and predicts who is better positioned to acquire in the first place. We also present a mechanism by which product capital affects performance, namely via acquirers’ superior selection and deployment of targets’ innovation potential. We argue that firms with high product capital, i.e., those with greater product development and support assets, make smarter acquisitions. Such firms are better at selecting targets with innovation potential, and then deploying this potential to gain competitive advantage. The performance consequences of this superiority in the selection and deployment of target firms are manifest in the long-term financial rewards to the acquiring firm. Results of an analysis of acquisitions in the pharmaceutical industry across 7 countries over 10 years (1992-2002) provide empirical support for our arguments.



  • Rajesh Chandy
  • Jaideep PRabhu


Journal of Marketing Research

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