Organization Capital and International Acquisitions

As a critical source of sustainable competitive advantage, organization capital combines human skills with physical assets and is of particular value in complex strategic endeavors such as international acquisitions. Our research examines the role of organization capital (OC) in firm internationalization through cross-border mergers and acquisitions (M&A). We focus on the effect of OC on the initiation of cross-border M&A deals and value creation after deal closing. Further, we investigate the role of acquisition experience and whether acquisition experience allows firms with high OC to better allocate and direct resources along the cross-border M&A process. We draw on longitudinal data from listed US firms spanning 24 years of M&A activity between 1996 and 2019 and find that firms with higher organization capital are more likely to internationalize through cross-border M&A because of freed-up resources to recognize opportunities. We further find that firms with higher organization capital sustain performance and significantly create value for investors in the short and long run because of a better understanding of capturing value from rare strategic events. We also show that acquisition experience strengthens the relationship of organization capital with firm internationalization, but we do not find a significant effect on value creation after deal closing. Our results offer novel and robust insights into the importance of organization capital in firm internationalization and value creation in international markets.