One‐Way Versus Two‐Way Postacquisition Integration Efforts: Theory and Evidence

Abstract

We develop a theory of postacquisition integration that distinguishes between one-way (acquirer-only) and two-way (mutual) effort strategies. We argue that the method of payment—cash versus shares—may serve as an ex ante commitment mechanism to a particular integration strategy, where cash deals align with unilateral effort, and share deals induce mutual engagement. Using transaction-level mergers and acquisitions data covering 1986–2009, we show that stock-financed acquisitions yield higher postmerger productivity, particularly in knowledge-intensive industries, but also exhibit greater performance variance. These higher-mean and higher-variance tendencies for share-financed vis-à-vis cash-financed acquisitions involve countervailing effects when factoring stock-market valuations; further, share-financed acquisitions are discounted when financial markets are characterized by high degrees of risk aversion. Overall, our findings highlight how financial structure shapes integration dynamics and synergy realization.