Influence of local market's preceding acquisition on acquisition premiums

Anchoring is a ubiquitous heuristic, by which decision-makers rely on a piece of information (anchor) that appears prior to a judgment. Yet few strategy scholars consider the impact of anchoring on strategic decision-making. This study investigates how anchoring might influence acquisition premium decisions, with the prediction that a market’s preceding acquisition premium acts as an anchor on the premium decision for a focal acquisition in the market, particularly if the preceding acquisition happened more recently or exhibited a superficial resemblance with the focal acquisition. A population of 13,496 acquisitions provides strong support for this prediction. Moreover, the influence of a preceding premium decision is weaker for focal acquirers with acquisition experience in the target industry, and stronger for those with a higher recent acquisition rate.

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