The effect of cross-firm social ties on M&A deal completion: The case of Europe

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2019-08-10
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en
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Despite a surge in the number of M&A deal announcements in the last decades, a high percentage of these deals fail before they are completed resulting in financial losses for corporations. The reasons behind this failure are many, but most importantly, the negotiation error and lack of sufficient information about the target during the pre-acquisition phase. One way to mitigate such information asymmetries is through pre-deal relations among the board members of both the target and the bidder firms. After all, M&As are a relationship business. In the international business literature, cross-firm social ties are among the common factors that affect the M&A deal. However, prior studies have emphasized the role of these ties on the post-acquisition phase, primarily on their impact on performance. But these studies neglected the role of cross-firm social ties on the pre-acquisition phase starting from the announcement date until the completion or abandonment date. For that reason, this study investigates the influence of the cross-firm social ties on the likelihood of M&A deal completion. The cross-firm social ties in this study are divided into three categories: employment ties, educational ties, and other ties. Additionally, this study examines how the difference between the female and male network moderate the effect of these cross-firm social ties. The hypotheses are tested using a sample of 3593 announced European deals from 1997 to 2016. The main findings of this study are in line with the prior research. The increasing number of cross-firm social ties between the target and the bidder firm will increase the likelihood of deal completion if the ties between the two firms are employment ties. However, if the ties fall under the other ties’ category, the effect on the likelihood of deal completion would be negative. Educational ties report an insignificant impact. Also, this study could not find any empirical evidence for the moderating effect of gender differences.
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Faculteit der Managementwetenschappen