Outbound links and Search Engine Rankings

Many webmasters give importance to inbound links, but are reluctant to link out to other sites - trying to hoard the pagerank. However, many search engines including Google grade your pages based on the sites you link to, apart from the content and inbound links.

Linking out if done properly can improve your ranking in many search engines. If you link out to other related sites, search engines may start perceiving your site as an authority site in your niche. When you link out to other sites - especially blogs, the other bloggers may reciprocate by linking back to content on your site. Also, if you provide good information to your site visitors through outbound links, it will enhance the usability and user experience; and you may end up in getting valuable referrals and citations to your site from these users. Thus, outbound links to other related sites can boost your search engine rankings.

You should, however, be careful of who you link to. Bad outbound links can drastically affect your website authority and rankings. The ideal rule to follow is - Do not link to any site which you would not like to associate with. If your site has many random links which are not related to your niche, search engines may start perceiving your site as a link farm or spam site. Some search engines may penalize your site by scoring it low on the perceived authority. Your outbound links may lose their value and may not be able to pass any pagerank juice to the linked sites.

Source : http://www.google-success.com/category/google-tips/