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

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.

Cross‐border and domestic minority acquisitions and financial constraints: Reaping big benefits from small shareholders

“…On the one hand, lower (higher) levels of shareholder protection at the target country seem to increase (decrease) the likelihood of a domestic minority acquisition. In the domestic market, information costs are lower, and acquirers have alternative modes of obtaining relevant information (e.g., through social networks, as in Nguyen et al, 2022). Therefore, acquirers in countries with high levels of protection may take advantage of the fact that target firms in countries with weak shareholder protections trade their shares at a discount.…”

“…Therefore, stronger minority shareholder protections can compensate for such disadvantages. On the other hand, in the domestic market, information costs are lower and acquirers have alternative ways to obtain relevant information (e.g., through social networks, as in Nguyen et al, 2022). Therefore domestic acquirers may take advantage of the fact that targets in countries with weaker country-level corporate governance measures (i.e., with lower shareholder protections) often trade at a discount without running excessive risks.…”

The Impact of the COVID-19 Pandemic on Cross-Border Mergers and Acquisitions’ Determinants: New Empirical Evidence from Quasi-Poisson and Negative Binomial Regression Models

“…Over the last decades, M&As have been explored in diverse themes (for instance, their impact on stock returns, abnormal returns, etc., synergies, value chain creation, performance outcomes, etc.) (Hutzschenreuter et al 2012;Nguyen et al 2021). However, this study focuses on determinants of M&As (Rossi and Volpin 2004;Wang 2008;Nguyen et al 2021, etc.…”