The Risk Implications of Mergers and Acquisitions with Information Technology Firms

Abstract

We address the dynamics of post-merger risks for a firm acquiring an information technology (IT) company over a long-term horizon, and examine the impact of mergers and acquisitions (M&A) motives on its post-merger risks after controlling for its self-selection into the specific motives the acquiring firm seeks. We find that a strong run-up in risk occurs before M&A transactions are initiated, but this risk begins to decline over the post-merger period. However, post-merger risks tend to persist for firms seeking M&A transactions with a customer-side motive, whereas this does not occur with a production-side motive. While greater post-merger risks are associated with M&As with a customer-side motive, our results suggest that its association with post-merger risks is moderated by industry dynamism. Overall, our study sheds new light on the post-merger risk by addressing its dynamic nature and uncovering the potential interplay between M&A motives and industry dynamism when IT firms are acquired.

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