Analyzing Complementarities Using Software Stacks for Software Industry Acquisitions.

Author List: Gao, Lucia Silva; Iyer, Bala;
Journal of Management Information Systems, 2006, Volume 23, Issue 2, Page 119-147.
The existence of product complementarities is especially relevant in network-type industries, such as information technology and communications, where systems of complementary components made by different manufacturers have to be assembled. Relying on the characteristics of software markets and drawing on the economic theory of complementarities, this paper investigates how complementarities create value in mergers and acquisitions between software companies. We introduce and empirically validate the software stack as a structure to measure complementarities. In a sample of mergers and acquisitions, in which either the acquirer or the target is a software firm, we find values of abnormal returns consistent with previous results. However, when we use the concept of stack, we find an inverse curvilinear relationship between abnormal returns and the distance between acquirers and targets in various layers of the stack.
Keywords: Complementarities; product complementarities; software stack
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#232 0.291 software development product functionality period upgrade sampling examines extent suggests factors considered useful uncertainty previous called complementarities greater cost present
#29 0.197 industry industries firms relative different use concentration strategic acquisitions measure competitive examine increases competition influence result characteristics mergers industry-level functions
#176 0.144 e-commerce value returns initiatives market study announcements stock event abnormal companies significant growth positive using methodology investments period time initiative
#293 0.100 values culture relationship paper proposes mixed responsiveness revealed specific considers deployment results fragmentation simultaneously challenges explain attribute building indicated obtain
#271 0.089 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater