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OG In an effort to explain why business acquisitions

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OG In an effort to explain why business acquisitions

Post Thu Jul 27, 2017 7:56 pm
In an effort to explain why business acquisitions
often fail, scholars have begun to focus on the role
of top executives of acquired companies. Acquired
companies that retain their top executives tend to
have more successful outcomes than those that do
not. Furthermore, existing research suggests that
retaining the highest-level top executives, such as the
CEO (chief executive officer) and COO (chief operating
officer), is related more positively to post acquisition
success than retaining lower-ranked top executives.
However, this explanation, while insightful, suffers from
two limitations. First, the focus on positional rank does
not recognize the variation in length of service that
may exist in top executive posts across companies,
nor does it address which particular top executives
(with respect to length of service) should be retained
to achieve a successful acquisition outcome. Second,
the relationship between retained top executives and
acquisition outcomes offered by existing research
is subject to opposing theoretical explanations
related to length of service. The resource-based view
(RBV) suggests that keeping acquired company top
executives with longer organizational tenure would lead
to more successful outcomes, as those executives
have idiosyncratic and nontransferable knowledge
of the acquired company that would be valuable for
the effective implementation of the acquisition. The
opposing position, offered by the upper echelons
perspective (UEP), suggests that retaining top
executives having short organizational tenure would
lead to more successful outcomes, as they would have
the adaptability to manage most effectively during the
uncertainty of the acquisition process
Responding to these limitations, Bergh conducted
a study of executive retention and acquisition
outcome that focused on the organizational tenure of
retained company top executives in 104 acquisitions,
followed over 5 years. Bergh considered the
acquisition successful if the acquired company was
retained and unsuccessful if it was divested. Bergh’s
findings support the RBV position. Apparently, the
benefits of long organizational tenure lead to more
successful outcomes than the benefits of short
organizational tenure. While longer tenured top
executives may have trouble adapting to change, it
appears that their perspectives and knowledge bases
offer unique value after the acquisition. Although
from the UEP position it seems sensible to retain
less tenured executives and allow more tenured
ones to leave, such a strategy appears to lower the
probability of acquisition success.

427) According to the passage, the research mentioned in line 6 suggests which of the following about lower-ranked top executives and postacquisition success?
A. Given that these executives are unlikely to contribute to postacquisition success, little effort should be spent trying to retain them.
B. The shorter their length of service, the less likely it is that these executives will play a significant role in postacquisition success.
C. These executives are less important to postacquisition success than are more highly ranked top executives.
D. If they have long tenures, these executives may prove to be as important to postacquisition success as are more highly ranked top executives.
E. Postacquisition success is unlikely if these executives are retained.

428) The resource-based view, as described in the passage, is based on which of the following ideas?
A. The managerial skills of top executives become strongest after the first five years of their tenure.
B. Company-specific knowledge is an important factor in the success of an acquisition process.
C. The amount of nontransferable knowledge possessed by long-tenured top executives tends to be underestimated.
D. Effective implementation of an acquisition depends primarily on the ability of executives to adapt to change.
E. Short-tenured executives are likely to impede the implementation of a successful acquisition strategy.

429) The passage suggests that Bergh and a proponent of the upper echelons perspective would be most likely to disagree over which of the following?
A. Whether there is a positive correlation between short organizational tenure and managerial adaptability
B. Whether there is a positive correlation between long organizational tenure and the acquisition of idiosyncratic and nontransferable knowledge
C. Whether adaptability is a useful trait for an executive who is managing an acquisition process
D. Whether retaining less-tenured top executives of an acquired company is an optimal strategy for achieving postacquisition success
E. Whether retaining highest-level top executives of acquired companies is more important than retaining lower-ranked top executives

430) According to the passage, prior to Bergh’s study, research on the role of top executives of acquired companies in business acquisition success was limited in which of the following ways?
A. It did not address how the organizational tenure of top executives affects postacquisition success.
B. It did not address why some companies have longer-tenured CEOs than others.
C. It did not consider strategies for retaining long-tenured top executives of acquired companies.
D. It failed to differentiate between the contribution of highest-level top executives to postacquisition success and that of lower-ranked top executives.
E. It underestimated the potential contribution that lower-level top executives can make to postacquisition success.

Q427: C
Q428: B
Q429: D
Q430: A

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