Acquirers' Board Interlocks Behind Mergers and Acquisitions

Abstract

This paper extends research on the strategic implications of boards of directors to those of board interlocks, which are considered either as sources of relational capital stemming from interfirm ties or as sources of inefficiencies due to directors’ multiple directorships. This implies that board interlocks may positively or negatively affect firm strategies. We reconcile the diverging views by proposing that they pertain to different facets of board interlocks. Specifically, a relational capital lens emphasizes opportunity identification, whereas a multiple directorship lens stresses opportunity realization. We test the distinction by investigating how firms grow via mergers and acquisitions (M&As). Leveraging a sample of M&As in the United States, we find that acquirers with more board interlocks are associated with more acquisition announcements (opportunity identification), but with a lower likelihood of acquisition completion (opportunity realization). In addition, we explore two contingencies: (1) interlocking directorship composition and (2) CEO-board power dynamics. Overall, our findings highlight a balanced view towards the strategic implications of board interlocks.