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

By Christine BeckmanPamela Haunsch
1996| Working Paper No. 1380

The purpose of this study is 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 measure the effect of three alternate sources of information on the relationship between interlocks and corporate acquisitions. Results show that wo alternate sources (e.tg., CEO membership in the Business Roundtable) reduce the impact of the interlock, while one source increases it. We also find that information from similar interlock partners ismore 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.