Strategic Management Journal Strat. Mgmt. J., 25: 587–611 (2004) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.410 THE INFLUENCE OF MERGERS ON FIRMS’ PRODUCT-MIX STRATEGIES RANJANI A. KRISHNAN, 1 * SATISH JOSHI 2 and HEMA KRISHNAN 3 1 Eli Broad Graduate School of Management, Michigan State University, East Lansing, Michigan, U.S.A. 2 College of Agriculture and Natural Resources, Michigan State University, East Lansing, Michigan, U.S.A. 3 Williams College of Business, Xavier University, Cincinnati, Ohio, U.S.A. This study draws on the institutional and resource-based theories of the firm and examines whether multi-product firms use mergers as a strategic tool to reconfigure their product-mix toward high-profit products. We propose that mergers facilitate product-mix reconfiguration by relaxing institutional and organizational constraints on resource redeployment. Analysis of data from the U.S. hospital industry reveals that, relative to non-merging hospitals, merging hospitals increased their presence in profitable, insured services but did not shift away from low-profit services used by the uninsured. Copyright  2004 John Wiley & Sons, Ltd. INTRODUCTION A considerable body of research examines the motives for horizontal mergers and acquisitions and their consequences. Research in the economics of industrial organization views market power and/or efficiency gains through scale economies as major motives for horizontal mergers (Lynk, 1995; Dranove and Shanley, 1995). Research in business strategy argues that firms often use acquisitions to reconfigure the acquiring firm or target firm’s business (Capron, Dussage, and Mitchell, 1998; Karim and Mitchell, 2000) and help change the mix of products and services offered to facilitate growth (Bowman and Singh, 1990, 1993; Lubatkin and O’Neill, 1988). Wernerfelt (1984) and Salter and Weinhold (1979) draw on the resource-based view (RBV) of the firm and discuss acquisi- tion strategies that involve obtaining more of the Key words: mergers; institutional theory; resource-based theory; hospitals; product-mix *Correspondence to: Ranjani A. Krishnan, Eli Broad Gradu- ate School of Management, Michigan State University, N251, North Business Complex, East Lansing, MI 48824, U.S.A. E- mail: Krishn15@msu.edu firm’s existing valuable resources (related supple- mentary), and resources that combine effectively with the firm’s existing resources (related comple- mentary). These resource acquisition strategies are aimed at improving a firm’s ability to enter and/or dominate attractive product markets. Institutional theorists posit that organizations require social acceptability, credibility, and legit- imacy in addition to material resources and tech- nical information if they are to survive and thrive in their social environment (Meyer and Rowan, 1977), and that the institutional environment con- strains firm behavior by defining legal, moral, and cultural boundaries. In general, institutional and other organizational theorists argue that businesses face substantial constraints in internal development and efficient allocation of resources. We com- bine insights from resource-based, institutional, and other organizational theories, and propose that mergers relax many institutional and orga- nizational constraints on firm behavior and prod- uct portfolio choices, and that business reconfig- uration through aggressive product-mix changes by exploiting these relaxed constraints is another strategic motive driving horizontal mergers. Copyright  2004 John Wiley & Sons, Ltd. Received 9 October 2001 Final revision received 8 January 2004