Too Close for Comfort? The Effect of Embeddedness and Competitive Overlap on Client Relationship Retention Following an Acquisition

  • Rogan M
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Abstract

Drawing on insights from network dynamics and exchange theory, I develop
and test arguments for the retention or dissolution of exchange
relationships. I exploit mergers and acquisitions among advertising
firms as strategic actions that change the networks in which they and
their clients are situated, and examine the consequences of these
changes for their network relationships. Analysis of an archival,
longitudinal data set confirms that, in general, relational embeddedness
reduces the likelihood of dissolution and that increases in competitive
overlap among clients increase dissolution likelihood. The results also
provide evidence of a significant interaction effect between relational
embeddedness and competitive overlap. For low to moderate increases in
competitive overlap, embeddedness reduces dissolution likelihood.
However, when the merger results in a high increase in competitive
overlap, increasing embeddedness actually increases dissolution
likelihood. Mechanisms to explain the findings are explored, including
fears of information leakage and trust betrayal. The findings suggest
that under certain conditions, relational embeddedness can reduce-rather
than increase-relationship stability.

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Authors

  • Michelle Rogan

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