Determinants of M&A acquisition premium: a social capital perspective

Huy Will Nguyen, Zhu Zhu, Young Hoon Jung, Dong Shin Kim

Research output: Contribution to journalArticlepeer-review

Abstract

Purpose: What determines the level of acquisition premium? This paper aims to investigate the effect of acquirers’ social capital as reflected through their network position (structural holes and network density) on the level of acquisition premiums. Design/methodology/approach: This study predicts acquisition premiums using a panel data set of 324 mergers and acquisition (M&A) transactions including 161 unique acquirers over a 21-year timeframe. M&A and alliance information are obtained from the securities data company platinum database; firm financial data are obtained from the COMPUSTAT database. Findings: The results show that alliance network social capital provides acquiring firms with information benefits, thus, reducing the acquisition premium. However, such information benefits are also contingent on target valuation uncertainty and acquirers’ structure exploitation tendency. Practical implications: Different types of network structures provide different social capital influences: managers should be aware of their advantages and pitfalls when engaging in M&As. The findings suggest that firms should pay close attention to social capital when making decisions regarding acquisition premiums. Originality/value: Past research has indicated that acquiring firms tend to overestimate the value of target firms. Still, little attention has been paid to organizational-level social capital in analyzing the determinants of acquisition premiums. This study offers insight into the effect of network structure on M&A acquisition premiums.

Original languageEnglish
JournalCompetitiveness Review
DOIs
StateAccepted/In press - 2021

Keywords

  • Acquisition premium
  • Alliances
  • Social capital
  • Structure exploitation

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