Anchoring on the acquisition premium decisions of others

Authors

  • Shavin Malhotra,

    Corresponding author
    1. Global Management Studies Department, Ted Rogers School of Management, Ryerson University, Toronto, Ontario, Canada
    • Correspondence to: Shavin Malhotra, Associate Professor, Global Management Studies Department, Ted Rogers School of Management, Ryerson University, 575 Bay Street, Toronto Ontario, M5G 2C5. E-mail: shavinm@ryerson.ca

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  • Pengcheng Zhu,

    1. Department of Finance, School of Business Administration, University of San Diego, San Diego, California, U.S.A
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  • Taco H. Reus

    1. Department of Business Society Management, Rotterdam School of Management (RSM), Erasmus University Rotterdam, Rotterdam, The Netherlands
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Abstract

Anchoring is a ubiquitous heuristic by which decision makers heavily rely on a piece of information (anchor) that appears prior to a decision. Yet, we know little about its role in strategic decisions. This study considers its influence on acquisition premiums by examining whether a focal premium decision may be anchored on the premium that another firm paid for the acquisition that directly preceded the focal acquisition in the same market because it presents a salient and compatible premium to decision makers. Our results support this premise, particularly when preceding acquisitions happened more recently and were similar in size to the focal deals, when focal deals were in a foreign market, and when acquirers lacked acquisition experience in the target market or had a higher acquisition rate. Copyright © 2014 John Wiley & Sons, Ltd.

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