Small and Startup IT Firms, Information Chasms, and the Market for Acquisitions

Nikhil Ramkrishna Bandodkar () and Renu Singh
Additional contact information
Nikhil Ramkrishna Bandodkar: College of Business and Information Systems, South Carolina State University, Orangeburg, SC 29117, USA
Renu Singh: College of Business and Information Systems, South Carolina State University, Orangeburg, SC 29117, USA

Businesses, 2022, vol. 2, issue 3, 1-21

Abstract: Small and startup IT (SSIT) firms are responsible for a lot of important IT innovations in the IT industry. Several SSIT firms are then bought by larger, more established IT companies that want to drive their innovation, add new product and service lines, or limit competition. However, because SSIT firms are often small and difficult to find, it is hard for many of them to show acquiring firms how good they are. We discuss three “information chasms” to explain why it is difficult for SSIT firms to show how good they are, and we suggest that the SSIT firms that successfully cross these “information chasms” can become acquired for a higher price. Using a dataset of over two hundred acquisitions of SSIT firms in the IT industry from the mid-2000s to the mid-2010s, we find that our hypotheses are confirmed. When SSIT firms invest in activities that eliminate uncertainty about the firm’s knowledge resources and promote the firm, they are acquired at a higher price. In addition, purchasers pay a premium for SSIT firms that continue to utilize mature IT during acquisitions.

Keywords: small IT firms; board of directors; start-up IT firms; firm value; venture capital; intellectual property; acquisitions; life cycle of IT (search for similar items in EconPapers)
JEL-codes: A1 D0 D4 D6 D7 D8 D9 E0 E2 E3 E4 E5 E6 E7 F0 F2 F3 F4 F5 F6 G0 G1 G2 H0 J0 K2 L0 L1 L2 M0 M1 M2 M3 M4 M5 N0 N1 N2 O0 O1 P0 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2673-7116/2/3/23/pdf (application/pdf)
https://www.mdpi.com/2673-7116/2/3/23/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jbusin:v:2:y:2022:i:3:p:23-375:d:909661

Access Statistics for this article

Businesses is currently edited by Dr. Patrick Han

More articles in Businesses from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().