Network Synergy

Administrative Science Quarterly, Forthcoming

49 Pages Posted: 19 Mar 2018

See all articles by Exequiel Hernandez

Exequiel Hernandez

University of Pennsylvania - The Wharton School

Myles Shaver

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: October 23, 2017

Abstract

Acquisitions can dramatically reshape interorganizational networks by combining previously separate nodes and allowing the acquirer to inherit the target’s ties. We define network synergy as the extent to which combining acquirer and target networks through node collapse results in a more favorable structural position for the combined firm. We hypothesize that the likelihood of selecting a target increases the greater the expected network synergy. Using data from the biotechnology industry (1995-2007), we find support for this hypothesis by showing that acquirers prefer targets that generate greater expected increases in network status and greater expected access to structural holes — even when we control for other known sources of synergies. We further show that these effects are driven by complementary combinations of the acquirer and target networks that go beyond the attractiveness of the target’s network per se. By integrating the networks and acquisitions literatures we introduce a novel source of synergies, provide evidence of a previously unexplored mechanism of network change, and show how firms can exert agency in the process of network change.

Keywords: Acquisitions, Networks, Synergy, Network Synergy, Structural Holes, Centrality, Biotechnology Industry

JEL Classification: M10, G34, L25, L65

Suggested Citation

Hernandez, Exequiel and Shaver, J Myles, Network Synergy (October 23, 2017). Administrative Science Quarterly, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3143913

Exequiel Hernandez (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

J Myles Shaver

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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