Disentangling the Microfoundations of Dynamic Capabilities: Evidence from Acquisitions

Both the dynamic capabilities and mergers and acquisitions literatures lack evidence regarding the relative contribution to behavior and outcomes of firm- level versus manager-level factors. We conduct a variance decomposition analysis of acquisition behavior and post-acquisition performance to explore how the outcomes of sensing, seizing, and reconfiguring are affected by individual-level versus firm-level factors. We find that CEO-level factors drive a substantial portion of the variance in acquisition behavior (sensing/seizing), and that firm-level factors account for a larger portion of the variance of acquisition performance (reconfiguring). We also incorporate prior experience at both the firm and CEO level into the analysis, enabling us to trace the impact of this experience on the variance of firm behavior and outcomes. We further examine the contribution of executives below the level of the CEO, and investigate differences between frequent and infrequent acquirers. Overall, our study contributes to the literatures on the microfoundations of dynamic capabilities, mergers and acquisitions, strategic leadership, and organizational learning.