Do Firms Forget About Their Past Acquisitions? Evidence From French Acquisitions in the United States (1988–2006)

Abstract

Empirical studies of the relationship between acquisition experience and acquisition performance have had mixed results. Interestingly, these studies have found that acquisition experience does not necessarily increase acquisition performance. In particular, the extent to which the recency of the acquisition experience affects the performance of the focal acquisition remains equivocal. To investigate this issue, the authors adopt a perspective based on the concept of organizational forgetting. In the context of operations management, organizational forgetting explains the decrease in productivity that firms experience as a result of knowledge depreciation over time and interruptions to production. Cognitive psychology scholars find that the forgetting process follows specific laws. On the organizational level, these laws indicate that the organizational memory may deteriorate over time for three reasons: inefficient encoding, decay, and disuse. In the context of acquisitions, the authors examine how forgetting depreciates acquisition experience and, therefore, increases the likelihood of failure in subsequent acquisitions. They carry out a survival analysis on a population of 731 U.S. firms acquired by French firms between 1988 and 2006. The research shows that acquisition experience that is old or recent has no significant impact on acquisition performance. However, medium-term acquisition experience reduces the likelihood that the focal acquisition will fail. These findings are consistent with the laws on forgetting. This research also provides evidence of the existence of reinforcement mechanisms as well as a paradoxical influence of past alliances with the target.