Acquirer-Target Social Ties and Merger Outcomes

52 Pages Posted: 17 Mar 2009 Last revised: 25 Mar 2014

See all articles by Joy L. Ishii

Joy L. Ishii

Stanford Graduate School of Business

Yuhai Xuan

University of California, Irvine - Paul Merage School of Business

Date Written: October 21, 2013


This paper investigates the effect of social ties between acquirers and targets on merger performance. Using data on educational background and past employment, we construct a measure of the extent of cross-firm social connection between directors and senior executives at the acquiring and the target firms. We find that between-firm social ties have a significantly negative effect on the abnormal returns to the acquirer and to the combined entity upon merger announcement. Moreover, acquirer-target social ties significantly increase the likelihood that the target firm’s CEO and a larger fraction of the target firm’s pre-acquisition board of directors remain on the board of the combined firm after the merger. This also holds true at the level of individual target directors. An individual target director is more likely to be retained on the post-merger board if that target director has more social connections to the acquirer’s directors and senior executives. In addition, we find that acquirer CEOs are more likely to receive bonuses and are more richly compensated for completing mergers with targets that are highly connected to the acquiring firms, that acquisitions are more likely to occur between two firms that are well-connected to each other through social ties, and that such acquisitions are more likely to subsequently be divested for performance-related reasons. Taken together, our results suggest that social ties between the acquirer and the target lead to poorer decision-making and lower value creation for shareholders overall.

Keywords: Mergers and acquisitions, Social ties

JEL Classification: G34

Suggested Citation

Ishii, Joy L. and Xuan, Yuhai, Acquirer-Target Social Ties and Merger Outcomes (October 21, 2013). AFA 2010 Atlanta Meetings Paper, Fourth Singapore International Conference on Finance 2010 Paper, Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

Joy L. Ishii

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Yuhai Xuan (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Drive
Irvine, CA California 92697-3125
United States


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