Drawn To Pricy Precedents: Anchoring In International Acquisition Premium Decisions



When firms make foreign acquisitions, preceding deals by other firms can offer relevant information on focal industries and focal targets. However, each acquisition carries unique synergistic benefits to acquiring and target firms. Therefore, overreliance on information from preceding deals can invoke an anchoring effect leading to sub-optimal decisions. Based on a sample of 1,053 international acquisitions, we demonstrate that when firms make foreign acquisitions they often anchor their premium decision on another foreign firm’s premium decision that made the preceding international acquisition in that market. This finding is revealing considering international acquisitions generally show higher premiums than domestic ones, and as such international acquirers may be destined to anchor on relatively higher premiums. Such anchoring happened particularly when preceding deals were done by home market peers or by firms from the same culture cluster, and when focal deals were done in countries characterized by greater uncertainty.