Strategic Management Journal Strat. Mgmt. J., 25: 563–585 (2004) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.404 DO EARLY BIRDS GET THE RETURNS? AN EMPIRICAL INVESTIGATION OF EARLY-MOVER ADVANTAGES IN ACQUISITIONS KENNETH CAROW, RANDALL HERON and TODD SAXTON* Kelley School of Business, Indiana University, Indianapolis, Indiana, U.S.A. We explore whether pioneering advantages exist for early-mover acquirers in industry acquisition waves by examining both combined (target and acquirer) and acquirer stock returns. Combined abnormal returns are higher for acquisitions that occur at the beginning of acquisition waves. However, for acquirers’ returns, only strategic pioneers—those acting in manners consistent with having superior information—capture significant advantages. Specifically, early-mover acquirers who realize superior stock returns are those that conduct acquisitions in related industries, during industry expansionary phases, and finance their acquisitions as financial theory suggests they should when they possess an informational advantage—with cash. Our findings extend the first-mover literature to corporate practices and link these practices to acquisition returns. Copyright  2004 John Wiley & Sons, Ltd. First-mover advantages represent an important con- cept in the strategic management literature and in business practice. A first-mover advantage implies that, by acting early relative to peers, a pioneer may establish a competitive advantage that enables it to garner positive economic profits (Lieber- man and Montgomery, 1988: 41). In the context of the resource-based view of the firm, an early mover can develop a resource that is rare, valu- able, difficult to imitate and nonsubstitutable (Bar- ney, 1986; Conner, 1991; Makadok, 1998; Werner- felt, 1984). Despite the relatively wide acceptance of first-mover advantages, few empirical studies examine whether being an early mover in certain organizational practices materially affects perfor- mance. In the retrospective on and update of their Key words: first-mover advantage; acquisitions; market returns; resource-based view *Correspondence to: Todd Saxton, Kelley School of Business, Indiana University, 801 West Michigan Street, Indianapolis, IN 46202-5151, U.S.A. E-mail: tsaxton@iupui.edu original paper on first-mover advantages, Lieber- man and Montgomery (1998) encourage more empirical research to identify the linkages between the resource-based view of the firm, first-mover advantages, and firm performance. First-mover advantages may be significant in industry acquisition waves. Acquisitions provide firms with a means to obtain valuable resources more quickly than is possible via internal capital expenditures (Finkelstein, 1997; Pfeffer, 1972). In light of the serious concerns that have been raised regarding the success of acquisitions in both practitioner and academic outlets (Business Week, October 30, 1995; Harford, 1999; Loughran and Vijh, 1997; Lubatkin and Lane, 1996; Porter, 1987), the determination of factors that influence acquisition success remains an important research question. This study investigates whether being an early mover in the acquisition process affects share- holder returns. Specifically, we compare the stock market reactions to early-mover acquisitions (i.e., Copyright  2004 John Wiley & Sons, Ltd. Received 26 April 2001 Final revision received 10 December 2003