Administrative Science Quarterly, Forthcoming
49 Pages Posted: 19 Mar 2018
Date Written: October 23, 2017
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: Suggested Citation