When Do Interlocks Matter?: Alternate Sources of Information and Interlock Influence

Abstract

We would like to thank Jeff Pfeffer, Joel Podolny, and seminar participants at Stanford University, UCLA, and the Johnson School at Cornell for helpful comments on earlier versions of this paper. The purpose of this study was to investigate when director interlocks affect corporate behavior, and how much influence they exert, by studying the conditions under which their influence varies. Existing theory supports the view that interlocks provide information, which affects firms' adoption of strategies and structures. If interlocks provide information, their influence should diminish to the extent that alternate sources of information are available. We measured the effect of alternate sources of information on the relationship between interlocks and corporate acquisitions. Results show that most alternate sources (e.g., CEO membership in the Business Roundtable) reduce the impact of the interlock, but one source (business press coverage) increases it. Also, information from similar interlock partners is more influential than information from dissimilar interlock partners. Our findings suggest a theory of interorganizational information: the substitutability and complementarity of multiple information sources affect their influence. The implications of our study for interlock and information theories are discussed.'