Strategic Management Journal

Strat. Mgmt. J., 38: 22372254 (2017)

Published online EarlyView 21 March 2017 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2645
Received 7 April 2013; Final revision received 5 December 2016

High-Reputation Firms and Their Differential

Acquisition Behaviors
Jerayr J. Haleblian,1 Michael D. Pfarrer,2* and Jason T. Kiley3
1
School of Business, University of California-Riverside, Riverside, California
2
Department of Management, Terry College of Business, University of Georgia,
Athens, Georgia
3
Department of Management, Spears School of Business, Oklahoma State
University, Stillwater, Oklahoma

Research summary: Emerging reputation research suggests that high-reputation firms will act to
maintain their reputations in the face of high expectations. Yet, this research remains unclear
on how high-reputation firms do so. We advance this research by exploring three questions
related to high-reputation firms differential acquisition behaviors: Do high-reputation firms make
more acquisitions than similar firms without this distinction? What kind of acquisitions do they
make? How do investors react to high-reputation firms differential acquisition behaviors? We find
that high-reputation firms make more acquisitions and more unrelated acquisitions than other
firms. Yet, we also find that investors bid down high-reputation firms stock more than other
firms in response to acquisition announcements, suggesting that investors are skeptical of how
high-reputation firms maintain their reputations.

Managerial summary: We know that high-reputation firms wish to maintain their elite standing
in the face of high-market expectations, but we know little about how they do so. We explore this
puzzle by investigating how reputation maintenance influences high-reputation firms acquisition
behaviors. We classify high-reputation firms are those firms that make Fortunes Most Admired
annual list, and we find that high-reputation firms make more acquisitions and more unrelated
ones than other firms. Surprisingly, we also find that the market tends to react negatively to these
acquisitions. Thus, managers may want to reconsider their strategy of making acquisitions as a
means to maintain their firms high reputations. Copyright 2017 John Wiley & Sons, Ltd.

Introduction Drawing from emerging reputation research (e.g.,

Firms engage in multiple thousands of acquisi-
tions annually with volume in the trillions of U.S.
dollars (Strumpf & Jarzemsky, 2014). Yet, despite
their prevalence, questions remain about firms
acquisition behaviors (Barkema & Schijven, 2008).
Keywords: firm reputation; social evaluations; mergers
and acquisitions; panel data; event study
*Correspondence to: Michael D. Pfarrer, Department of Manage-
ment, Terry College of Business, University of Georgia, 600 S.
Lumpkin St., Athens, GA 30602. E-mail: mpfarrer@uga.edu
Mishina, Dykes, Block, & Pollock, 2010; Petkova,
Wadhwa, Yao, & Jain, 2014; Rindova, Williamson,
Petkova, & Sever, 2005; Zavyalova, Pfarrer, Reger,
& Hubbard, 2016), we address these questions
by isolating an important subset of firms not yet
directly explored within the acquisitions literature:
high-reputation firms.
High-reputation firms are a distinct subset of
firms that have consistently met their stakehold-
ers expectations of delivering highly valued out-
comes over time (Lange, Lee, & Dai, 2011; Petkova
et al., 2014; Pfarrer, Pollock, & Rindova, 2010;
Rindova et al., 2005). A firm may have different

Copyright 2017 John Wiley & Sons, Ltd.

2238 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
reputations with different stakeholders, who may
have different perceptions of highly valued out-
comes (e.g., Barnett, Jermier, & Lafferty, 2006;
Flanagan, OShaughnessy, & Palmer, 2011; Lange
et al., 2011; Rindova et al., 2005). In the context
of our study, we argue that a specific constituency,
investors, rewards a small group of exceptional
firms with high reputations based on these firms
abilities to consistently meet investors expectations
of high growth, value, and quality (Flanagan et al.,
2011).
However, investors also expect high-reputation
firms to deliver higher levels of growth, value,
and quality relative to similar firms without this
distinction (Cabral, 2016; Fombrun, 1996; Graf-
fin, Bundy, Porac, Wade, & Quinn, 2013; R. K.
Merton, 1968; Mishina et al., 2010; Petkova et al.,
2014). Correspondingly, we assert that investors
hold high-reputation firms to higher expectations
than other firms. We suggest that because of these
expectations, high-reputation firms engage in dif-
ferential acquisition behaviors to maintain their
reputations. Specifically, we explore three ques-
tions related to high-reputation firms acquisition
behaviors: Do high-reputation firms make more
acquisitions than other firms? What kind of acqui-
sitions do they make? How do investors react
to high-reputation firms differential acquisition
behaviors?
Regarding our first questionacquisition
numberwe find that high-reputation firms make
109% more acquisitions in the year following their
classification than other firms during the same win-
dow. Regarding our second questionacquisition
typewhile we show no difference between the
size of high-reputation firms acquisitions and
others firms, we do show that high-reputation
acquisitions were 83% higher in unrelatedness.
Regarding our final questioninvestor
reactionwhile high-reputation firms appear
compelled to make acquisitions in order to main-
tain their reputations, we find that investors in
our sample responded negatively to the mean
acquisition announcements of high-reputation
firms (mean CAR = 0.005), but responded pos-
itively to the mean acquisition announcements
of other firms (mean CAR = 0.001). Specifically,
a high-reputation firm with a $50 billion market
capitalization would encounter a $300 million
acquisition penalty versus a similar firm without a
high reputation. These findings suggest that while
high-reputation firms seek to maintain reputation
Copyright 2017 John Wiley & Sons, Ltd.
through differential acquisition behaviors, the
market remains skeptical of this approach.
Our work adds to the literature on high-reputation
firms in several ways. First, we extend emerg-
ing reputation research by exploring how
high-reputation firms maintain their reputa-
tions in the face of high expectations. Second, we
contribute to research on high-reputation firms
by focusing on the role this distinction plays
in affecting a significant and prevalent strategic
activity. Finally, we illuminate investors negative
reactions to high-reputation firms differential
acquisition behaviors, suggesting a mismatch
between reputation maintenance and investors
expectations.
Study Framework
Organizational research on firm reputation contin-
ues to evolve (cf. Barnett et al., 2006; Deephouse,
2000; Fombrun, 1996; Pfarrer et al., 2010; Rindova
et al., 2005; Zavyalova et al., 2016). In a recent
review and extension of this research stream,
Lange and colleagues (2011) described reputation
as the perception that a firm is meeting specific
stakeholders expectations of delivering highly
valued outcomes over time. Similarly, Petkova
and colleagues (2014) described reputation as
the perception of a firms ability to consistently
deliver high value to specific stakeholders along
salient dimensions. In line with these descriptions,
we conceptualize and empirically represent firm
reputation as the perceptions of a specific stake-
holder group, investors, about the firms ability to
meet their expectations of high growth, value, and
quality (cf. Flanagan et al., 2011).
We are interested in high levels of firm reputation
(high reputation). At these levels, reputation can
accrue benefits for a firm, including better access to
resources and greater financial performance (Dier-
ickx & Cool, 1989; Pfarrer et al., 2010; Rao, 1994;
Rao, Greve, & Davis, 2001; Rindova, Pollock, &
Hayward, 2006; Zavyalova et al., 2016). External
observers can distinguish the importance of these
benefits relative to firms that do not possess a
high reputation and that have not consistently met
observers expectations of delivering highly valued
outcomes (Burson, Larrick, & Lynch, 2009; Janicik
& Larrick, 2005; Rao, 1994). In the context of our
study, we argue that investors cognitively isolate a
small group of exceptional firms and reward them
Strat. Mgmt. J., 38: 22372254 (2017)
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 High-Reputation Firms and Their Differential Acquisition Behaviors
with high reputations based on the firms abilities to
consistently meet investors specific expectations of
high growth, value, and quality.
Of course, investors place expectations on all
firms over time (e.g., De Bondt, 1993; J. Fuller &
Jensen, 2002; He & Tian, 2013; Shleifer & Vishny,
2003; Skinner & Sloan, 2002). However, research
from accounting, finance, management, and sociol-
ogy suggests that investors and other stakeholders
make greater demands on the best of the best,
including high-reputation firms (e.g., Brooks, High-
house, Russell, & Mohr, 2003; Graffin et al., 2013;
Kasznik & McNichols, 2002; Mishina et al., 2010;
Petkova et al., 2014; Rhee & Haunschild, 2006;
Wade, Porac, Pollock, & Graffin, 2006; Zavyalova
et al., 2016). In doing so, investors signal that more
is expected from firms on which they have con-
ferred their high approval (Cabral, 2016; R. K. Mer-
ton, 1968, p. 57). Yet, past research is less clear on
how high-reputation firms respond to high expecta-
tions in a desire to maintain their reputations and the
potential benefits associated with this distinction.
We therefore explore how high-reputation firms act
to maintain their reputations by examining their dif-
ferential acquisition behaviors.
Investors Expectations, Reputation
Maintenance, and Acquisition Behaviors
Positive acquisition performance has been shown in
instances in which an acquirers unique resources
are transferred to the target (Capron & Pistre, 2002).
Moreover, acquisitions fit well within the time
parameters of investors expectations because they
may contribute revenue and earnings growth more
quickly than organic expansion (Nolop, 2007).
Since high-reputation firms are recognized for hav-
ing distinct capabilities, the possibility for positive
acquisition returns may offer high-reputation firms
an aggressive path to maintain their reputations by
meeting investors expectations.
Alternatively, meeting investors expectations
and maintaining their reputations may require
conservative behavior in which high-reputation
firms avoid action that could lead to poor perfor-
mance and damage to their elite standing (Mishina
et al., 2010; Petkova et al., 2014). High-reputation
firms expend much cost and time to build up their
reputations (Dierickx & Cool, 1989). In doing
so, they can accrue a stock of goodwill with
their stakeholders (Jones, Jones, & Little, 2000;
Zavyalova et al., 2016). These efforts and resultant
Copyright 2017 John Wiley & Sons, Ltd.
2239
benefits suggest that high-reputation firms may be
reticent to squander their reputations by taking part
in behavior that may result in a loss of reputation
(Clark & Montgomery, 1998; Weigelt & Camerer,
1988).
The outcomes associated with acquisition activ-
ity vary widely, ranging from large gains to large
losses (e.g., Hayward, 2002), as such they are often
considered risky endeavors (Wan & Yiu, 2009).
However, past reputation research is equivocal as
to whether the high expectations high-reputation
firms face will encourage them to aggressively
swing for the fences or to take a more conserva-
tive approach in order to maintain their reputations
(Mishina et al., 2010; Petkova et al., 2014; Pfarrer
et al., 2010; Sanders & Hambrick, 2007). Below, we
address these questions by exploring the differen-
tial acquisition behaviors of high-reputation firms.
Specifically, we explore three questions related to
high-reputation firms acquisition behaviors: Do
high-reputation firms make more acquisitions than
other firms? What kind of acquisitions do they
make? How do investors react to high-reputation
firms differential acquisition behaviors?
Number of Acquisitions
One way in which high-reputation firms may
attempt to meet investors expectations and main-
tain their reputations is to increase the number of
acquisitions they make. Since acquisitions are asso-
ciated with the potential to enhance firm growth,
value, and quality (Kim, Haleblian, & Finkelstein,
2011), making more acquisitions may be associated
with attempts at meeting investors high expecta-
tions. Importantly, while there is great variation in
acquirer returns on acquisitions (Capron & Pistre,
2002), evidence also suggests that acquirers mak-
ing multiple acquisitions may achieve significant
positive returns (K. Fuller, Netter, & Stegemoller,
2002). Therefore, an acquisition strategy that
encompasses a larger number of acquisitions
may offer high-reputation firms the possibility of
satisfying investors high expectations.
Alternatively, research shows that acquisitions
are complex, require significant effort to negoti-
ate and finance (e.g., Barney, 1988), and are not
always value enhancing for the acquiring firm
(e.g., Agrawal, Jaffe, & Mandelker, 1992; Asquith,
1983; Jarrell & Poulsen, 1989; Moeller, Schlinge-
mann, & Stulz, 2004). In turn, the integration
of the target with the acquirerwith potentially
Strat. Mgmt. J., 38: 22372254 (2017)
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2240 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
differing internal processes, management styles,
and culturespresents a unique set of challenges
(e.g., Haspeslagh & Jemison, 1991; Zollo & Singh,
2004). Additionally, as the number of acquisitions a
firm makes increases, it likely faces mounting odds
that one or more of its acquisitions will be over-
priced or fail to be synergistic in terms of processes,
products, or culture (Laamanen & Keil, 2008). As a
result, acquisition activity may pose the possibility
that a firm will squander its high reputation and not
meet investors high expectations. Based on these
arguments, we empirically test if high-reputation
firms make more acquisitions than similar firms
without this distinction.
Size of Acquisitions
Making relatively larger acquisitions may be
another way in which high-reputation firms meet
investors high expectations and maintain their
reputations. Larger acquisitions are consequential
decisions; one successful, large deal may allow
a high-reputation firm to meet investors high
demands and maintain their elite standing. Large
acquisitions may therefore signal to investors
that the firm is taking significant steps to meet
expectations.
However, the potential gains from making
relatively larger acquisitions may be offset by
potential losses. That is, acquisitions of larger
targets may lead to more extreme returns for the
acquirerboth positive and negativecompared
to acquisitions of smaller firms (K. Fuller et al.,
2002). Prior research has suggested that smaller
acquisitions yield more positive market reactions
than larger ones (Moeller et al., 2004). Along
these lines, it may be that larger acquisitions are
more laborious to negotiate, more expensive to
purchase, and more difficult and time intensive
to integrate than smaller ones (Haspeslagh &
Jemison, 1991). In sum, larger acquisitions expose
high-reputation firms to potentially larger losses;
yet the more extreme outcomes associated with rel-
atively larger acquisitions may give high-reputation
firms a chance to meet investors robust targets.
Based on these arguments, we empirically test if
high-reputation firms make larger acquisitions than
similar firms without this distinction.
Acquisition Unrelatedness
In order to maintain their reputations and meet
investors high expectations, we also explore
Copyright 2017 John Wiley & Sons, Ltd.
whether high-reputation firms pursue more unre-
lated acquisitions or if they shy away from them.
On one hand, high-reputation firms may have
fewer horizontal acquisition options than other
firms, and thus, make acquisitions that are more
unrelated to their existing businesses. Specifically,
high-reputation firms may be more likely than other
firms to have exhausted attractive opportunities in
their primary business segments (cf. Deephouse
& Carter, 2005; Jovanovic & Braguinsky, 2004).
As a result, they enter new markets as a way to
meet investors high expectations of growth, value,
and quality. Less related acquisitions offer access
to new businesses while potentially avoiding the
strategic constraints that may come with existing
market dominance.
To elaborate, relatedness is the degree of simi-
larity between the businesses of the acquirer and
the acquirers target (Seth, 1990). A highly related
acquisition may be a less beneficial strategy for a
high-reputation firm than for other firms. Typically,
high-reputation firms are industry leaders (Roberts
& Dowling, 2002). Hence, high-reputation firms are
likely to have already exploited the best opportuni-
ties in their existing markets while avoiding either
entry into unattractive segments or waging costly
battles with rivals (Ferrier, Smith, & Grimm, 1999).
Accordingly, high-reputation firms may look out-
side their established industry or industries for the
best emerging opportunities in order to maintain
their reputations.
On the other hand, decreased investment in more
unrelated acquisitions may be beneficial. Acquirers
who have knowledge of their own industry will be
less able to assimilate and use knowledge from a
target firm in an unrelated industry (Barkema & Ver-
meulen, 1998; Cohen & Levinthal, 1990). Indeed,
prior research shows less related acquisitions tend
to underperform compared to more related acqui-
sitions (Morck, Shleifer, & Vishny, 1990; Seth,
1990). Thus, managers should be cognizant that this
approach may come at the expense of relinquish-
ing reputation developed over years of consistently
delivering high value to investors.
In summary, we argue that that the desire
to maintain a high reputation may influence a
firms acquisition relatedness. On the one hand,
high-reputation firms may benefit from engaging
in more unrelated acquisitions. It may be that
high-reputation firms, which have fewer related
acquisition options than other firms, will seek out
more unrelated acquisitions in the hopes of meeting
Strat. Mgmt. J., 38: 22372254 (2017)
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 High-Reputation Firms and Their Differential Acquisition Behaviors
investors high expectations and maintaining their
reputations. On the other hand, engaging in more
unrelated acquisitions may threaten high-reputation
firms with a loss of investor goodwill that follows
from acting aggressively, which may cause man-
agers to act more cautiously. Based on these
arguments, we empirically test if high-reputation
firms make more unrelated acquisitions than similar
firms without this distinction.
Investors Reactions to High-Reputation Firms
Acquisition Behaviors
A logical, final question related to our exploration of
high-reputation firms focuses on the consequences
of their differential acquisition behaviors. Namely,
we ask: How do investors react to these behav-
iors? As with our previous questions, extant reputa-
tion theory offers equivocal predictions about how
stakeholders will respond to high-reputation firms
attempts to maintain their reputations.
On the one hand, research from accounting,
finance, management, and sociology has found that
elite firms, such as high-reputation firms, face high
expectations from stakeholders, including investors,
and that they are penalized disproportionately for
failing to meet these expectations (e.g., Abar-
banell & Lehavy, 2003; Brooks et al., 2003; L.
Brown, 2001; Cabral, 2016; De Bondt, 1993; J.
Fuller & Jensen, 2002: Graffin et al., 2013; Rhee
& Haunschild, 2006; Zavyalova et al., 2016). For
example, Skinner and Sloan (2002) found that
growth companies generated more optimistic earn-
ings forecasts from analysts, which thus led to
greater punishments for these firms if they missed
earnings relative to other firms. Similarly, organiza-
tional research has shown that high-reputation firms
suffer greater penalties following certain events
such as product recalls, legislative infractions, and
environmental disasters (e.g., Rhee & Haunschild,
2006; Zavyalova et al., 2016; Zyglidopoulos, 2001).
On the other hand, a stream of research has found
that firms with high levels of conferred approval,
including reputation, may receive greater leeway
from stakeholders after failing to meet expecta-
tions (Brooks et al., 2003; Jones et al., 2000; Pfarrer
et al., 2010; Phillips & Zuckerman, 2001; Schnietz
& Epstein, 2005). For example, empirical evidence
has shown that high-reputation firms receive the
benefit of the doubt following behaviors such as cor-
porate downsizing, earnings surprises, and legisla-
tive infractions (e.g., Godfrey, Merrill, & Hansen,
Copyright 2017 John Wiley & Sons, Ltd.
2241
2009; Love & Kraatz, 2009; Pfarrer et al., 2010;
Zavyalova et al., 2016).
In summary, reputation research does not shed
clear light on the relationship between high-
reputation firms attempts to maintain their
reputations and stakeholders reactions. Based
on these arguments, we empirically test how
investors react to high-reputation firms acquisition
announcements relative to similar firms without
this distinction.
Data and Methods
Research Setting and Sample
We tested our research questions on a matched
sample drawn from the 1,388 firms that appeared in
the Fortune 500 at least once in the period between
1991 and 2008. Following past research, we
obtained data on a firms reputation using the rank-
ings in Fortunes Most Admired Companies (e.g.,
Love & Kraatz, 2009; Roberts & Dowling, 2002)
as well as the Wall Street Journal/Harris Interactive
Corporate Reputation list (Gardberg & Fombrun,
2002; Pfarrer et al., 2010). We coded a firm as
having a high reputation if it appeared among the
top 25 firms on either list in a given year (i.e., high
reputation = 1; otherwise = 0). Our sample yielded
75 firms that we classified as high reputation at
least once within the sampling frame and on which
we could gather publicly available financial data.
We acknowledge that past research (e.g., B.
Brown & Perry, 1994; Fryxell & Wang, 1994) has
cautioned against the effects of a performance
halo when using the Fortune sample. Scholars
analyzing data from the 1980s and early 1990s
found that financial performance was positively and
highly correlated to the Most Admired firms in
their samples, thus potentially confounding results.
However, recent research has shown that the tight
coupling between financial performance and rep-
utation has weakened over the last three decades
(Flanagan et al., 2011; Pfarrer et al., 2010), and the
correlation between the high-reputation firms and
performance in our sample is low (accounting per-
formance, r = 0.19, p = .000; stock performance,
r = 0.005, p = .739). Thus, we are confident that
in the context of our study, our sampling tech-
nique, measures, and analyses help isolate the dis-
tinct effects of high reputation on differential acqui-
sition behaviors and investors perceptions. This is
consistent with recent reputation research (Flanagan
Strat. Mgmt. J., 38: 22372254 (2017)
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2242 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
et al., 2011; Pfarrer et al., 2010) and evidence from
managers (Engardio & Arndt, 2007) that firm rep-
utation is not only distinct from firm performance,
but also from firm visibility. Our robustness checks
confirmed these observations.1
Propensity score matching (PSM). We use
propensity score matching (PSM) to create a series
of matched samples between a sample of Fortunes
Most Admired firms and a sample of Fortune 500
firms. PSM is a class of statistical procedures that
matches firms based on comparable attributes by
using archival data rather than randomized experi-
mental data (Guo & Fraser, 2010; Li, 2013; Rawley,
2010). In all of our matched samples, we used Stata
13s teffects psmatch command in which we utilized
the nearest neighbor matching technique.
For use in our regression models, we created
a firm-level sample in which we matched our
75 high-reputation firms with similar Fortune 500
firms. These matches were based on firm size
(assets) and industry dummy variables coded using
Fama and Frenchs (1997) 48 industry group-
ings derived from sets of similar four-digit SIC
codes. Our matching process resulted in 282 sim-
ilar firms that we used in our firm-year level data
set, which allowed us to test our first question: Fo
high-reputation firms make more acquisitions than
other firms? Of those 282 similar firms, 141 made at
least one acquisition within the sample frame, and
thus, were included in our acquisition-level data set,
which allowed us to test our remaining questions:
What kind of acquisitions do high-reputation firms
make and how do investors react to high-reputation
firms differential acquisition behaviors? For use in
our PSM estimator models, we used our firm size
and industry dummy variables as described above
along with all of our control variables listed below
to match observations (at the firm-year or acquisi-
tion levels, as appropriate) and estimate the average
treatment effect (ATE).2
Acquisition samples. We constructed two panel
data sets. Our first data set was at the firm-year
1 We substituted our high-reputation independent variable with
both residualized and orthogonalized versions, in which we
partialed out the common variance due to performance (ROA) and
visibility (volume of media coverage). In both cases, our results
did not change.
2
Our results are substantively similar with a PSM sample and one
constructed manually using the same criteria.
Copyright 2017 John Wiley & Sons, Ltd.
level, in which we assessed the number of acqui-
sitions firms made each year within the sampling
frame (acquisition number: N = 5,252 for regres-
sion models and N = 10,472 for PSM).3 Our second
data set was at the acquisition level, in which
we compared the nature and outcomes of com-
pleted, majority acquisitions by high-reputation
firms to the acquisitions by similar firms not
classified as high-reputation firms. We compared
high-reputation firms to nonhigh-reputation firms
on (a) acquisition size (N = 1,331 for regression
models and N = 2,457 for PSM) and (b) acquisition
unrelatedness (N = 1,331 for regression models and
N = 2,461 for PSM). We obtained data on acquisi-
tions from the Thomson SDC Platinum database,
and we obtained stock price data to calculate
abnormal returns from the Center for Research in
Securities Pricing (CRSP). We collected additional
financial and compensation data from Compustat,
IBES, and Execucomp.
Dependent Variables
We conducted analyses using three dependent vari-
ables, which resulted in the construction of the two
separate databases described above.
Acquisition number. To test the influence of
high reputation on subsequent acquisition activity,
we measured Acquisition number as the total num-
ber of acquisitions made by each firm in the focal
year. The data ranged from 0 to 23 with a mean of
0.307 and a standard deviation of 0.913.
Acquisition size. To determine if high-reputation
firms made larger acquisitions than other firms,
we measured Acquisition size as the deal size in
millions of U.S. dollars. The median acquisition
deal value (the price paid for the target firm) in our
sample was $249 million.
Acquisition unrelatedness. To test whether high-
reputation firms differentially make acquisitions
outside their primary areas, we measured Acqui-
sition unrelatedness using four-digit SIC codes
3
The reported N for PSM is different from the regression
models because it creates matches (with replacement) for every
observation and counts every observation in the N count. In every
case, the PSM estimator models are run on the same data sets as
the corresponding regression models.
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
 High-Reputation Firms and Their Differential Acquisition Behaviors
derived from the four main lines of business (by
sales) in which an acquirer and target operated
(e.g., Morck et al., 1990). If a firm operated in fewer
than four four-digit industries, we used all indus-
tries. We assigned weights based on the degree
to which acquirer and target SIC codes matched
(e.g., Finkelstein & Haleblian, 2002; Haleblian &
Finkelstein, 1999). However, our study differs from
prior work in that we are interested in acquisition
unrelatedness rather than acquisition relatedness
(e.g., McNamara, Haleblian, & Dykes, 2008).
Hence, we assigned higher numbers to more
unrelated acquisitions. Specifically, we assigned a
3 to an acquisition if the acquirer and target shared
no SIC codes; we assigned a 2 if the acquisition
was related between acquirer and target at the
two-digit level. In addition, we assigned a 1 if the
acquisition was related between acquirer and target
at the three-digit level, and we assigned a 0 if the
acquisition was related between acquirer and target
at the four-digit level.
Investors reactions to acquisitionsabnormal
return. Investors perceived importance of an
acquisition may be assessed by a firms security
price change during a period surrounding the
acquisition announcement. This price change is
called an abnormal return and is calculated as
the difference between the observed return for a
security and the predicted or normal return for
the same security (Brown & Warner, 1985). Thus,
the impact of an acquisition announcement is
measured by the portion of the return that is unan-
ticipated by a model of anticipated, normal returns.
Following the finance literature (e.g., Savor &
Wilson, 2016), we use a factor model, specifically
the Fama and French (1993) three-factor model.
The three factors are (a) market returns above the
risk-free rate; (b) smallminusbig, a factor that
captures the relative market outperformance of
firms with smaller market capitalizations; and (c)
highminuslow, a factor that captures the relative
market outperformance of stocks with a higher
book-to-market ratio (i.e., value stocks) over
those with a lower ratio (i.e., growth stocks) (see
also Fama & French, 1992).
To determine the influence of an acquisition
announcement on a firms security price, abnor-
mal returns are summed over an event window.
Short event windows can limit possible confound-
ing effects (McWilliams & Siegel, 1997). Using the
Copyright 2017 John Wiley & Sons, Ltd.
2243
Wharton Research Data Services (WRDS) Daily
Event Study tool, which uses stock data from CRSP,
we measured Abnormal return as the cumulative
abnormal return (CAR) over the three-day window
(1, 1) around the announcement date of an acqui-
sition.4 Due to the number of announcements in the
sample, however, it was not feasible to ascertain all
acquisitions with contemporaneous announcements
of confounding events (e.g., McWilliams & Siegel,
1997). Hence, conclusions based on these perfor-
mance outcomes should be viewed as suggestive
(Graffin, Haleblian, & Kiley, 2016).
Independent Variable
High reputation. In line with our theoretical
arguments, we are specifically interested in high
levels of firm reputation. At these levels, repu-
tation is salient in the minds of investors and
often accrues benefits for a firm relative to other
firms that do not possess reputation at high lev-
els (e.g., Dierickx & Cool, 1989; Pfarrer et al.,
2010; Rao, 1994; Zavyalova et al., 2016). More-
over, specific stakeholders, such as investors, can
distinguish the differences between high-reputation
firms and other firms without perceiving the dif-
ferences among high-reputation firms or among
firms with lower levels of reputation (e.g., Burson
et al., 2009; Janicik & Larrick, 2005; Zavyalova
et al., 2016). Finally, investors have higher expecta-
tions for high-reputation firms than other firms (e.g.,
Brooks et al., 2003; Cabral, 2016; Fombrun, 1996;
R. K. Merton, 1968; Mishina et al., 2010; Petkova
et al., 2014; Rhee & Haunschild, 2006; Wade et al.,
2006).
Our search of Fortune also supported our choice
of a discrete measure. The magazine promi-
nently displayed the top firms as the best of
the bestoften listed on the coverwhile the
rest were relegated to smaller print or listed in an
issues back matter. This evidence is consistent with
rankings of U.S. universities, a popular measure of
organizational reputation (e.g., Rindova et al., 2005;
Zavyalova et al., 2016). For example, Zavyalova
and colleagues found that high-reputation univer-
sities were listed on the cover and first page of the
U.S. News and World Report annual rankings issue,
4
We also modified the window to two (0, 1) and five (2, 2)
days, and used abnormal returns where the expected returns were
calculated with a capital asset pricing model (CAPM). Our results
remained substantively similar to our reported models.
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
2244 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
followed by all other universities on subsequent
pages. Additionally, the online rankings showed
high-reputation universities on the first webpage,
followed by schools with lower reputations on sub-
sequent webpages. Given recent evidence that most
online users do not click through to the second page
of search results (Jensen, 2011) as well as the theo-
retical and empirical evidence that high-reputation
organizations are distinct from nonhigh-reputation
organizations, we believe our binary measure best
reflects how high reputation is perceived as a salient
and discrete firm characteristic.
It is also important to note that Fortune con-
ducts its assessment of the most admired compa-
nies in two parts. First, Fortune sends an initial,
intra-industry survey to members of the investment
community, including executives, board members,
and analysts, and asks them to rate 10 firms in
their industry along eight dimensions that reflect
investors perceptions of high-reputation firms
abilities to deliver superior growth, value, and qual-
ity (Flanagan et al., 2011). Second, to arrive at
the final, inter-industry ranking of the best of the
best, Fortune then asks the investment commu-
nity to select the 10 companies they admire most
from a list consisting of the companies ranked
highly within the intra-industry surveys. Thus, for
the inter-industry ranking, survey participants may
vote for any company in any industry.5
To construct the High reputation measure, we
assigned a 1 to a firm that appeared either in the
top 25 of the Fortunes Most Admired Companies
list or in the Wall Street Journal/Harris Interactive
ranking. This resulted in 75 firms within our sample
timeframe. On average, firms held this distinction
for 5.3 firm years with a standard deviation of
4.9 years.
We then tracked the number of acquisitions for
the 75 firms and compared them to the acquisitions
for the other firms. Because investors perceptions
of high reputation may depreciate over time (e.g.,
Pfarrer et al., 2010), we assigned a decay rate of 1/n
in which n is equal to the number of years since the
firm received the high-reputation ranking (Argote,
5
Because the initial survey is intra-industry, comparing scores
across industries may not be appropriate. Different industries have
different raters in the first survey. By contrast, in the second
survey, all firms are ranked by one set of participants across
industries. Consistent with the notion that the two surveys reflect
different perceptions among investors, the correlation between
the first-stage and second-stage survey score is only 0.35 in our
matched sample.
Copyright 2017 John Wiley & Sons, Ltd.
Beckman, & Epple, 1990; Darr, Argote, & Epple,
1995; Greve, 2003). We continued this rate of decay
for 4 years.6 Thus, 1 year after being classified as
high reputation, the firm received a score of 1;
2 years after such a ranking, the firm received a
score of 1/2; 3 years after the classification the
firm received a score of 1/3; and in the fourth
year, post-classification, the firm received a score
of 1/4. However, if a firm was classified as high
reputation in consecutive years (e.g., a score of 1
in 2001 and 2002), the decay did not begin until
the firm was no longer classified as high reputation
(e.g., a score of 0.5 in 2003). Our discounted
measure of high reputation always preceded our
dependent variables, which helped rule out reverse
causality (Kenny, 1979; Wooldridge, 2002). In our
PSM estimator models, we used a binary measure
of high reputation as the treatment variable (i.e.,
independent variable).
Control Variables
As noted previously, we constructed our first data
set at the firm-year level and our second data set at
the acquisition level. For the former, we included
acquirer-level and CEO-level controls, and for the
latter, we included deal-, acquirer-, and CEO-level
controls.
Deal-level controls. We used Acquisition size
and Acquisition unrelatedness as deal-level controls
when they were not the dependent variables of
interest. In addition, we controlled for Percent
stock, measured as the percentage of the acquisition
value paid by the acquirer using stock. We also
controlled for Cross-border acquisitions, defined as
acquisitions made in which the acquirer and target
were headquartered in different nations. Prior work
suggests such acquisitions may lead to synergy
gains (Eun, Kolodny, & Scheraga, 1996). If a target
originated from the same nation as the acquirer, we
coded the cross-border acquisition as 0; otherwise,
we coded this variable as 1.
Acquirer-level controls. We also controlled for
Acquirer visibility in terms of a firms media
coverage (Zavyalova, Pfarrer, Reger, & Shapiro,
2012). As we mentioned above, acquisitions are
salient behaviors in the investment community and
6
We also used a binary measure of high reputation (i.e., without
decay). Our results were unchanged.
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
 High-Reputation Firms and Their Differential Acquisition Behaviors
are likely to attract high levels of attention from
investors. In turn, this high visibility may lead the
investment community to recall certain acquiring
firms more readily, potentially making their appear-
ance on subsequent high-reputation lists more likely
(Brooks et al., 2003; Mishina et al., 2010; Pollock,
Rindova, & Maggitti, 2008).
Given our focus on investors perceptions of
high-reputation firms, we measured Firm visibility
as the annual count of articles mentioning the firm in
the New York Times, Wall Street Journal, and Finan-
cial Times.7 To collect this variable, we gathered
metadata from Factiva for 280,452 news articles on
firms in our sample. As mentioned above, firms that
seek attention may desire to either accrue or main-
tain a high-reputation distinction with investors.
Thus, acquisition visibility may serve as an alter-
native explanation for why high-reputation firms
would engage in differential acquisition behaviors.
We measured Acquirer size by the total assets
in billions of dollars of the acquiring firm (e.g.,
Jarrell & Poulsen, 1989). Research shows that
acquirer slack affects acquisition behavior (e.g.,
Hitt, Harrison, & Ireland, 2001; Lang, Stulz, &
Walkling, 1991). Following Haunschild (1993),
we measured slack in two ways: Free cash flow
([Operating IncomeTaxesInterest Expense
DepreciationPreferred DividendCommon
Dividend]/Common Equity) and Debt to equity
(Bourgeois, 1981). We measured both variables at
the end of the year before the acquisition year.
Managerial-level controls. We also controlled
for managerial confidence (Malmendier & Tate,
2008), which occurs when individuals place a high
level of faith in their own efficacy (A. Chatter-
jee & Hambrick, 2007; Hayward & Hambrick,
1997). Thus, similar to attention-seeking, manage-
rial confidence may be an alternative explanation
for why CEOs would engage in differential acquisi-
tion behaviors.
Consistent with prior research, we measured
managerial confidence in several ways. Each mea-
sure of confidence was conceptualized as a con-
tinuous variable in which higher values suggest
7 As a robustness check, we gathered metadata on a 10%
subsample of firms in our matched sample from Factivas Major
News and Business Sources database, which includes, among
other sources, 120 prominent U.S. publications. This search
resulted in metadata covering 290,673 news articles. The two
measures were highly correlated (r = 0.83; p = .000), suggesting
that our primary measure reflects firm visibility among investors.
Copyright 2017 John Wiley & Sons, Ltd.
2245
greater confidence (e.g., Chen, Crossland, & Luo,
2014). First, recent firm success may trigger greater
levels of managerial confidence. Accordingly, we
measured Recent acquirer performance as (a) the
acquirers return on assets (e.g., Harrison, Hitt,
Hoskisson, & Ireland, 1991) and (b) the stock price
appreciation in the year prior to the acquisition
divided by the initial stock price 2 years prior to the
acquisition (Hayward & Hambrick, 1997). Second,
confident managers may have an inflated assess-
ment of their abilities relative to others. An indi-
cator of managerial self-importance is the CEOs
compensation relative to that of other executives
(Hayward & Hambrick, 1997). We measured CEO
relative compensation as CEO cash compensation
divided by the cash compensation of the next three
highest executives (Hayward & Hambrick, 1997).
Finally, managerial confidence may also be con-
text specific (Bandura, 1997). In our context, we
equated confidence with positive recent acquisition
performance as managers with better recent acqui-
sition performance have been found to be more
likely to make subsequent acquisitions (Haleblian,
Kim, & Rajagopalan, 2006). Accordingly, we mea-
sured Recent acquisition performance as the aver-
age abnormal returns associated with the firms
prior acquisitions in the 3 years prior to the current
acquisition.
Year indicators. We constructed 17 year indica-
tors (omitted year = 1991) to control for the effects
of socioeconomic conditions on acquisition activity.
They are omitted from the tables to save space.
Analysis
As we mentioned above, we tested the first question,
the effect of high reputation on the annual number
of acquisitions, on a sample of 3,249 firm-year
observations.8 We tested the second question,
the effect of high reputation on acquisition size
and acquisition unrelatedness, and the third ques-
tion, the effect of high reputation on investors
reactions to acquisitions (CAR), on a second
sample of 1,325 acquisition-level observations.
We estimated the models using a cross-sectional
time series technique that pools the panel data.
8
In the case of our acquisition number regression models, the
sample size is restricted by using a fixed-effects estimator as some
firms have no acquisitions over the panel, and thus, are dropped.
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2246 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
Table 1
Firm-Year Data: Summary Statistics and Correlations

Variables Mean S.D. 1 2 3 4 5 6 7 8 9 10

Acquirer size (Billions) 29.878 105.568 1.00

Debt to equity
Free cash flow
Firm visibility
Acquirer acct. performance
Acquirer stock performance
Recent acquisition performance
CEO relative compensation
Acquisition count
High reputation
0.602 7.281 0.10 1.00
0.131 2.034 0.04 0.63 1.00
57.112 116.593 0.42 0.04 0.03 1.00
48.973 67.198 0.11 0.02 0.06 0.02 1.00
0.105 1.966 0.00 0.03 0.03 0.01 0.05 1.00
0.000 0.028 0.05 0.02 0.01 0.04 0.01 0.01 1.00
2102.863 5147.741 0.14 0.02 0.00 0.06 0.08 0.03 0.01 1.00
0.307 0.913 0.09 0.01 0.03 0.10 0.08 0.02 0.00 0.16 1.00
0.086 0.263 0.06 0.00 0.01 0.28 0.19 0.00 0.00 0.08 0.13 1.00

Note. N = 5,252.

Because many firms in the sample made more
than one acquisition, pooling multiple acquisitions
made by the same firm violated the assumption of
independent observations required for OLS regres-
sion, resulting in serial correlation of the models
residuals. Although multiple estimation approaches
exist for modeling pooled cross-sectional data,
fixed- and random-effects approaches are the
most prevalent (Certo & Semadeni, 2006). The
fixed-effects approach utilizes within-unit infor-
mation to calculate estimates in order to account
for unobserved heterogeneity, and random-effects
models utilize both between- and within-unit
information to calculate estimates (Wooldridge,
2002).
While results from the relevant Hausman (1978)
specification tests for our models testing acqui-
sition number and acquisitions size indicated the
consistency of random-effects model results with
fixed-effects model results, we opted to report
fixed-effects models as a more conservative pre-
sentation of our results.9 For the count dependent
variable (acquisition number), we ran a fixed-effects
negative binomial model in Stata (xtnbreg). For
the continuous dependent variable in the study
(acquisition size), we used a fixed-effects panel
data regression technique in Stata (xtreg). For the
nonlinear ordinal dependent variable (acquisition
unrelatedness), we ran a random-effects ordered
probit in Stata (xtoprobit) (Frechette, 2001; Greene,
9 removing one of the two variables, our results were substantively
For models testing acquisition number and acquisition size, a
Hausman test indicated that the random-effects estimator is con-
sistent with the fixed-effects estimator. In both cases, our results
are substantially similar, and the p-values for our high-reputation
variable are somewhat lower (i.e., stronger).
2003).10 We also used a PSM estimator (teffects
psmatch in Stata 13) to estimate the average treat-
ment effect (ATE) of high reputation and to
test our research questions. We used firm size,
industry dummy variables, and all of our control
variables as covariates for matching observations
using the nearest neighbor matching procedure.
We report results from fixed-effects regression,
random-effects ordered probit regression, and PSM
estimator analyses in our tables.
Results
Tables 1 and 2 show descriptive statistics and bivari-
ate correlations for the variables used in the study.
We calculated variance inflation factors (VIFs) to
check for the presence of multicollinearity in the
three of our four main effect models in which VIFs
could be calculated.11 The average VIF was 1.60
for Model 3-2 (i.e., Table 3, Model 2), 1.60 for
Model 4-2, and 1.60 for Model 4-6.12 Given the
low individual and average VIF values, we found
no evidence of multicollinearity concerns in our
sample (S. Chatterjee & Price, 1991; Pedhazur,
1997).13 Further, we did not detect any coefficient
10
Fixed-effects ordered probit models produce biased estimates
(Greene, 2003).
11
Statas vif command does not calculate VIFs for xtoprobit
models, even when using the uncentered option.
12
The highest VIFs were for the debt-to-equity and free cash
flow variables, which ranged from 4.3 to 6.7 across models. When
similar in each case.
13
Even though our VIF numbers are low, we cannot rule out that
our high visibility variable is picking up some of the effect of high
reputation (r = 0.28).

Copyright 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
 High-Reputation Firms and Their Differential Acquisition Behaviors 2247
Table 3

0.13 0.22 0.05 1.00

14

Firm-Year Models: Acquisition Number

0.07 0.01 1.00

13

(1) (2)
Number, Number,
Base HR

0.16 1.00
12

Acquisition count
1.00 Constant 1.2091 1.2127
11

(0.2012) (0.2013)
Firm characteristics
Acquirer size 0.0014 0.0015
1.969 0.11 0.02 0.05 0.03 0.01 0.01 0.02 0.07 0.03 1.00
0.049 0.16 0.01 0.01 0.01 0.03 0.05 0.08 0.04 0.04 0.07
4801.827 8447.896 0.08 0.06 0.00 0.00 0.07 0.01 0.02 0.06 0.15 0.07
0.043 0.01 0.09 0.03 0.01 0.01 0.06 0.08 0.03 0.03 0.02
0.374 0.03 0.07 0.07 0.08 0.06 0.01 0.02 0.38 0.28 0.03
10

(0.0003) (0.0003)
Debt to equity 0.0012 0.0007
(0.0142) (0.0142)
74.067 0.03 0.03 0.01 0.03 0.16 0.10 0.16 0.01 1.00

Free cash flow 0.0306 0.0297

9

(0.0274) (0.0275)
Firm visibility 0.0006 0.0005
95.616 148.233 0.13 0.08 0.11 0.09 0.57 0.03 0.03 1.00

(0.0004) (0.0004)
8

Hubris controls
Acquirer acct. performance 0.0023 0.0022
2.307 0.03 0.03 0.04 0.00 0.02 0.87 1.00

(0.0007) (0.0007)
7

Acquirer stock performance 0.0292 0.0278

(0.0152) (0.0152)
3.754 0.01 0.03 0.04 0.02 0.07 1.00

Recent acquisition performance 0.8587 0.8786

6

(0.7235) (0.7235)
CEO relative compensation 0.0000 0.0000
57.744 181.363 0.06 0.09 0.15 0.05 1.00

(0.0000) (0.0000)
5

Independent variable
High reputation 0.2950
0.423 0.21 0.09 0.04 1.00

(0.1391)
4

Observations 3,296 3,296

R-squared
1.175 0.05 0.06 1.00

Chi-squared 250.11 255.46

3

933.398 2036.905 0.16 1.00

Note. Year dummy variables are present in the analyses but

2

omitted from the tables.

40.458 1.00
1

instability among the research variables when we

added variables either individually or hierarchically
Acquisition Data: Summary Statistics and Correlations

(Greenberg & Parks, 1997; Kennedy, 2003).

S.D.

Tables 3 and 4 report the regression estimates

that predict our dependent variables of acquisi-
tion number, acquisition size, acquisition unre-
23.882

0.764
0.233

0.323
0.008

67.351
0.001
0.000

0.000
0.193
Mean

latedness, and acquisition abnormal return. We

report only control variables in the odd-numbered
modelsModel 3-1 (DV: Acquisition number),
Recent acquisition performance

4-1 (DV: Acquisition size), 4-3 (DV: Acquisition

Acquirer stock performance

unrelatedness), 4-5 (DV: Abnormal returns). The

CEO relative compensation
Acquirer acct. performance
Acquisition size (millions)

Cross-border acquisitions

even-numbered modelsModels 3-2, 4-2, 4-4, and

Acquirer size (billions)

4-6add the independent variable High reputation

to the odd-numbered models. Table 5 reports our
Abnormal returns
High reputation

PSM model results for the above dependent vari-

Note. N = 1,227.
Free cash flow
Firm visibility
Debt to equity
Unrelatedness
Percent stock

ables.
Variables

In response to our first question, we tested if

Table 2

high-reputation firms make more acquisitions than

similar firms without this distinction. We found that
Copyright 2017 John Wiley & Sons, Ltd. Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
2248 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
Table 4
Deal-Level Models: Zize, Unrel., CAR

(1) (2) (3) (4) (5) (6)

Size, Base Size, HR Unrel., Base Unrel., HR CAR, Base CAR, HR

Constant 454.4190 470.6803 0.0223 0.0239

(506.3352) (507.1063) (0.0108) (0.0108)
Deal characteristics
Deal value 0.0001 0.0001 0.0000 0.0000
(0.0000) (0.0000) (0.0000) (0.0000)
Unrelatedness 170.6919 172.5502 0.0019 0.0018
(61.0671) (61.1522) (0.0014) (0.0014)
Percent stock 13.6065 13.5583 0.0013 0.0015 0.0000 0.0000
(1.7623) (1.7644) (0.0012) (0.0012) (0.0000) (0.0000)
Cross-border acquisitions 315.2668 317.4466 0.0963 0.1057 0.0012 0.0011
(156.2320) (156.3104) (0.0986) (0.0989) (0.0035) (0.0035)
Firm characteristics
Acquirer size 1.1086 1.0967 0.0008 0.0009 0.0000 0.0000
(0.9192) (0.9196) (0.0004) (0.0004) (0.0000) (0.0000)
Debt to equity 25.4551 24.5772 0.0050 0.0039 0.0009 0.0010
(37.8782) (37.9131) (0.0465) (0.0467) (0.0008) (0.0008)
Free cash flow 44.4299 44.4097 0.0288 0.0299 0.0023 0.0023
(59.3972) (59.4129) (0.0709) (0.0722) (0.0013) (0.0013)
Firm visibility 1.9106 1.8731 0.0001 0.0001 0.0000 0.0000
(0.8496) (0.8518) (0.0005) (0.0005) (0.0000) (0.0000)
Hubris controls
Acquirer acct. performance 2.8335 2.8860 0.0016 0.0016 0.0000 0.0000
(1.5359) (1.5385) (0.0010) (0.0010) (0.0000) (0.0000)
Acquirer stock performance 3.2914 4.0642 0.0028 0.0033 0.0001 0.0001
(33.9074) (33.9379) (0.0234) (0.0235) (0.0007) (0.0007)
Recent acquisition performance 214.8061 329.6917 0.4237 0.1607 0.0512 0.0410
(1501.5369) (1512.6323) (1.0233) (1.0326) (0.0321) (0.0323)
CEO relative compensation 0.0125 0.0112 0.0000 0.0000 0.0000 0.0000
(0.0087) (0.0089) (0.0000) (0.0000) (0.0000) (0.0000)
Independent variable
High reputation 181.8754 0.3384 0.0157
(284.3122) (0.1608) (0.0063)
cut1 0.6110 0.5744
(0.3365) (0.3355)
cut2 0.9728 0.9368
(0.3374) (0.3365)
cut3 1.3162 1.2807
(0.3384) (0.3374)
sigma2_u 0.9380 0.9372
(0.1907) (0.1914)
Observations 1,331 1,331 1,331 1,331 1,213 1,213
R-squared 0.09 0.09 0.04 0.05
Chi-squared 42.84 46.72

Note. Year dummy variables are present in the analyses but omitted from the tables.

the coefficient for High reputation in Model 3-2 was
positive (p = .034), suggesting that high-reputation
firms make more acquisitions than other firms. We
calculated the magnitude of effects for this variable
by computing, on average, the additional acquisi-
tions high-reputation firms make compared to firms
without this distinction. We found that when all
Copyright 2017 John Wiley & Sons, Ltd.
other variables were held constant, firms with a
nonzero High reputation score made approximately
109% more acquisitions in the year following their
classification than other firms during the same time
window.
In response to our second question, we tested if
high-reputation firms make larger acquisitions than
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
 High-Reputation Firms and Their Differential Acquisition Behaviors
Table 5
Propensity Score Matching Model Results
Dependent variable Sample size
Acquisition number 10,472
Size 2,457
Unrelatedness 2,461
CAR 2,091
Covariates used for matching
Deal value (deal-level models where it is not the DV)
Unrelatedness (deal-level models where it is not the DV)
Percent stock (deal-level models only)
Cross-border acquisitions (deal-level models only)
Acquirer size
Debt to equity
Free cash flow
Firm visibility
Acquirer acct. performance
Acquirer stock performance
Recent acquisition performance
CEO relative compensation
Industry
Year
Note. These models use dichotomized high reputation.
similar firms without this distinction. The coeffi-
cient for High reputation in Model 4-2 does not
appear to be different from zero (p = .522), suggest-
ing that high-reputation firms do not make acquisi-
tions of greater size than other firms. We also tested
whether high-reputation firms make more unre-
lated acquisitions than similar firms without this
distinction. We found that the coefficient for High
reputation in Model 4-4 was positive (p = .035),
suggesting that high-reputation firms do make more
unrelated acquisitions than other firms. In calculat-
ing the magnitude of effects, we found that, on aver-
age, acquisitions by high-reputation firms were 83%
higher in unrelatedness (using our ordinal measure)
than acquisitions by other firms.
Finally, we asked how investors would react to
high-reputation firms acquisition announcements.
We found the coefficient for High reputation in
Model 4-6 was negative (p = .013). Moreover, we
found that in comparison to a zero cumulative
abnormal return (CAR), investors responded neg-
atively to the mean acquisition announcements
of high-reputation firms (mean CAR = 0.005),
but responded positively to the mean acquisition
announcements of other firms (mean CAR = 0.001).
Thus, a high-reputation firm with a $50 billion mar-
ket capitalization would encounter a $300 million
Copyright 2017 John Wiley & Sons, Ltd.
2249
High reputation p-Value
0.2827 .0470
174.2755 .5307
0.6097 .0000
0.0124 .0163
acquisition penalty versus a firm of similar size but
without a high reputation.
Discussion
Despite decades of acquisitions research, questions
remain about the factors that drive firms acqui-
sition behaviors and the influence of investors
reactions on these behaviors (e.g., Haleblian, Dev-
ers, McNamara, Carpenter, & Davison, 2009). In
this article, we drew from reputation research to
shed light on these lingering questions for a sub-
set of high-reputation firms. We theorized that
high-reputation firms were subject to investors
high expectations; however, it was not clear how
these firms would respond to these expectations in
order to maintain their reputations. We found that
high-reputation firms made more acquisitions as
well as more unrelated ones than similar firms with-
out this distinction. Further, we found that investors
bid down high-reputation firms stock more than
other firms in response to acquisition announce-
ments, suggesting that a high-reputation classifica-
tion can have negative implications in our context.
Taken together, our empirical findings led us
to three primary contributions. First, we extended
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
2250 J. J. Haleblian, M. D. Pfarrer, and J. T. Kiley
traditional strategic management research by exam-
ining the role that reputation plays in influencing
acquisition behaviors (cf. Haleblian et al., 2009).
Prior research has suggested that remaining com-
placent renders industry leaders vulnerable to com-
petitive challenges (Ferrier et al., 1999). Hence,
high-reputation firms may be compelled to acquire
other firms not only to meet investors high expecta-
tions, but also to maintain their competitive advan-
tage. Future research should investigate the impact
of high reputation on other types of growth-related
strategies such as innovation, market expansion, and
increased product offerings as well as the decision
to grow organically versus through acquisitions.
Second, we informed research on market
responses to acquisition announcements by explor-
ing whether investors reacted differentially to the
acquisitions of high-reputation firms. We found
that high-reputation firms generated more negative
market reactions than other firms that made similar
acquisitions. Superficially, this finding is consistent
with prior research that shows larger and less
related acquisitions experience weaker market
reactions than acquisitions that are smaller and
more related (Moeller et al., 2004; Seth, 1990;
Travlos, 1987). Yet, we found the negative effect
of high reputation on investors perceptions to be
significant over and above the influence of these
control variables. This suggests that the market
penalizes high-reputation acquisitions beyond what
may be expected from the type of acquisition alone.
On a deeper level, our findings are consistent
with organizational research that has recognized
that high reputation may serve as a double-edged
sword under certain conditions. Specifically,
high-reputation firms may receive the benefit of the
doubt, but also may be punished more than other
firms following actions that challenge stakehold-
ers expectations (cf. Brooks et al., 2003; Pfarrer
et al., 2010; Rhee & Haunschild, 2006; Wade
et al., 2006; Zavyalova et al., 2016). In our study,
investors appear to perceive high-reputation firms
differential acquisition behaviors to be counter to
how such elite firms should grow, suggesting that
high reputation functions more as a liability than
an asset in this context. More generally, scholars
should continue to delve into how firm reputation
influences market reactions as it can serve as a
benefit or a burden under specific circumstances
(Zavyalova et al., 2016).
Similarly, investors adverse reactions to
high-reputation firms acquisition behaviors
Copyright 2017 John Wiley & Sons, Ltd.
suggest that investors may perceive these acquisi-
tions as signals of high-reputation firms limited
growth opportunities (McCardle & Viswanathan,
1994), including having likely exhausted attractive
opportunities in their primary business segments
(cf. Deephouse & Carter, 2005; Jovanovic &
Braguinsky, 2004). For example, investors may
perceive a high-reputation firms acquisition target
as lower in quality, thereby potentially diluting
the overall quality of the high-reputation firm.
Investors appreciation of high-reputation firms
internal growth strategies may also drive their
conferral of high reputation. Thus, investors may
expect high-reputation firms to continue to grow in
this manner, despite the obvious challenges.
It may also be that top managers at high-
reputation firms face less oversight from their
boardsconsistently delivering value over time
may lead to less board diligence. Since CEO
compensation is positively influenced by a firms
level of diversification and size (Finkelstein &
Hambrick, 1989; Rose & Shepard, 1997), it may
be that managers under limited oversight pur-
sue acquisitions in order to increase their own
compensation through empire building. Future
research should carefully examine the influence of
reputation on board diligence in order to shed more
light on this issue.
Third, we extended research on firm reputation
by focusing on the effects of investors expecta-
tions for high-reputation firms and the role high
reputation plays in affecting firms strategic behav-
iors (Mishina, Block, & Mannor, 2012; Mishina
et al., 2010; Pfarrer et al., 2010). High-reputation
firms in our sample included Apple, Google, Gold-
man Sachs, Microsoft, and Walmart, and our find-
ings showed that this distinct subset of firms were
aggressive in terms of their acquisition behaviors. It
may be that the salience of external expectations for
high-reputation firms and their desire to accrue the
benefits associated with this conferred distinction
compelled them to engage in actions that would oth-
erwise not have been predicted by traditional behav-
ioral arguments.
Finally, although we ran fixed-effects models
where appropriate, we realize that laboratory stud-
ies offer the advantage of better isolating cause and
effect. Hence, we encourage future work on repu-
tation to include laboratory settings to better pin-
point causality. As research on social evaluations
continues to grow (cf. Bundy & Pfarrer, 2015),
the study of related social approval constructs,
Strat. Mgmt. J., 38: 22372254 (2017)
DOI: 10.1002/smj
 High-Reputation Firms and Their Differential Acquisition Behaviors
including celebrity, legitimacy, and status, hold the
potential to yield interesting patterns associated
with these constructs maintenance as well as firm
risk-taking, strategic decision-making, and stake-
holders reactions.
Conclusion
Scholars have increasingly focused on developing a
better understanding of the specific circumstances
that help or hinder acquirers from creating value
(e.g., Haleblian et al., 2009). We addressed these
questions by examining high-reputation firms dif-
ferential acquisition behaviors. Our findings sug-
gest that while high-reputation firms make more
acquisitions and more unrelated acquisitions than
other firms, they do not appear to know how to make
acquisitions that appeal to investors.
Acknowledgements
We would like to thank Editor Constance Helfat
and two reviewers for their guidance throughout
the review process. We would also like to thank
Theresa Cho, Craig Crossland, Scott Graffin, Yuri
Mishina, Alan Muller, Nandini Rajagopalan, Mario
Schijven, and Ken Smith for their insights on
previous versions of the article. This research was
funded, in part, by a Terry-Sanford research grant
from the University of Georgia.
The authors are listed in random order. Each
contributed equally to the article.
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