HOW MUCH IS THAT COMPANY WORTH - INTERORGANIZATIONAL RELATIONSHIPS, UNCERTAINTY, AND ACQUISITION PREMIUMS

This study investigates the effects of interorganizational relationships on the decision of how much to pay when acquiring another company (acquisition premiums). I argue that firm managers will look to both their interlock partners and professional firms when deciding how much to pay. Drawing on diverse literatures on the effects of uncertainty on interorganizational relationships, I further argue that the impact of interlocks and professional firms on the premium decision will be stronger when managers are uncertain about the value of the acquisition target. Hypotheses are developed and tested on 453 acquisitions that occurred during 1986-1993. Results show that both interlocks and relationships with professional firms affect acquisition premiums. Premiums paid by an acquiror are related to those paid by their interlock partners and to those paid by other firms using the same professional firm. Only the interlock premium relationship, however, is stronger under conditions of uncertainty. The study contributes to our understanding of the role of interorganizational transfers of routines, practices, and structures in interorganizational decisions.