Title: Theory and evidence on mergers and acquisitions by small and medium enterprises

Authors: Utz Weitzel, Killian J. McCarthy

Addresses: Utrecht University School of Economics, Janskerkhof 12, 3512 BL Utrecht, The Netherlands; Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group, Kahlaische Strasse 10, 07745 Jena, Germany. ' Rijksuniversiteit Groningen, School of Economics and Business, P.O. Box 800, 9700 AV Groningen, The Netherlands

Abstract: The theory of mergers and acquisitions (M&As) has been developed almost exclusively from the study of large deals by large firms. In this paper, we argue that the behaviour and success of M&As by small and medium sized enterprises (SMEs) may be significantly different. Accordingly, we revisit established M&A theories and develop a theoretical framework and several testable hypotheses, regarding the distinctive features of SME M&As. Our empirical results support our expectations and show that, compared to large firms, acquiring SMEs rely more intensively on external growth via M&As, are more likely to be withdrawn, suggesting that SMEs are more flexible and more able to avoid deals that turn sour. Finally, SME M&As are more likely to be financed with equity rather than debt, indicating that the influential financial pecking order theory is of less relevance to SMEs.

Keywords: mergers; acquisitions; small and medium-sized enterprises; SMEs; large firms; external growth; flexibility; business deals; equity; debt; pecking order theory; USA; United States; Western Europe; entrepreneurship; innovation management; entrepreneurial finance.

DOI: 10.1504/IJEIM.2011.041734

International Journal of Entrepreneurship and Innovation Management, 2011 Vol.14 No.2/3, pp.248 - 275

Published online: 30 Sep 2014 *

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