Role of prior relationships between syndication partners on sequential decision making

Shiva Agarwal, McCombs School of Business

Abstract: Current research has established a number of factors, both at the individual and organizational levels, which can explain firms’ resistance in terminating investments despite negative feedback. Most of this research focuses on intra-organizational investments (Guler, 2007 is an important exception). We find that sequential investments are also prominent in the case of inter-organizational relationships in form of joint ventures, syndicated investments by venture capital and private equity firms. Hence, it is important to understand how inter-organizational relationships between the partner firms affect these investments. Guler, 2007 is an only exception that looks at political interplay between the partner firms and its effect on the likelihood that the firms will invest sequentially in a successful vs. a failed transaction. In this paper, we will like to bridge this research gap by considering the effect of inter-organizational factors like prior relationship and similarity / dissimilarity of past experience on sequential investments made by firms in the case of successful and unsuccessful transactions.