The Effects of Initial Differences in Firms’ Espoused Values on Their Postmerger Performance

Recent studies have concluded that most mergers and acquisitions (M&As) reduce rather than increase shareholder value for the acquiring firm, but understanding of why this occurs is limited. To date, most research has focused on issues of strategic fit, whereas this study examines the effects of organizational fit—specifically the effects of differences in firms’ pre-M&A configurations of espoused values in regards to relationships with employees versus production. The dependent variable of interest is the resulting entities’ subsequent financial performance (return on assets, adjusted for industry). The study analyzed 59 M&As between 1989 and 1996. The authors measured the espoused values of both firms in the transaction by content analyzing presidents’letters to shareholders in corporate annual reports. Using a longitudinal design, results show an inverse relationship between differences in espoused values and postmerger performance. Results and methodology are discussed in terms of their application beyond the M&A context.

[1]  Girish N. Punj,et al.  Cluster Analysis in Marketing Research: Review and Suggestions for Application , 1983 .

[2]  M. Hitt,et al.  The Blackwell handbook of strategic management , 2005 .

[3]  L. Katz,et al.  Small Groups: Studies in Social Interaction. , 1956 .

[4]  Marshall S. Smith,et al.  The general inquirer: A computer approach to content analysis. , 1967 .

[5]  Aneil K. Mishra,et al.  Toward a theory of organizational culture and effectiveness. , 1995 .

[6]  Robert R. Blake,et al.  The Managerial Grid: Key Orientations For Achieving Production Through People , 1972 .

[7]  B. Kabanoff,et al.  Values Espoused by Australian and US Organisations , 2000 .

[8]  Boris Kabanoff,et al.  Changes in the espoused values of Australian organizations 1986—1990 , 1996 .

[9]  J. Kotter,et al.  Corporate Culture and Performance , 1992 .

[10]  Donald C. Hambrick,et al.  Effects of executive departures on the performance of acquired firms , 1993 .

[11]  Karlene H. Roberts,et al.  The nature of organizational leadership , 1967 .

[12]  Hema A. Krishnan,et al.  DIVERSIFICATION AND TOP MANAGEMENT TEAM COMPLEMENTARITY: IS PERFORMANCE IMPROVED BY MERGING SIMILAR OR DISSIMILAR TEAMS? , 1997 .

[13]  Eric Abrahamson,et al.  THE INFORMATION CONTENT OF THE PRESIDENT'S LETTER TO SHAREHOLDERS , 1996 .

[14]  Kevin G. Corley,et al.  Organizational Identity, Image, and Adaptive Instability , 2000 .

[15]  S. Mohammed,et al.  Team Mental Model: Construct or Metaphor? , 1994 .

[16]  Donald A. Schön,et al.  Organizational Learning: A Theory Of Action Perspective , 1978 .

[17]  K. Ramaswamy.  The performance impact of strategic similarity in horizontal mergers: Evidence from the U.S. banking industry , 1997 .

[18]  Margaret A. White,et al.  Performance of Acquisitions of Distressed Firms , 1994 .

[19]  Harrison M. Trice,et al.  Writing Organizational Tales: The Cultures of Work Organizations , 1995 .

[20]  Albert H. Segars,et al.  The President's Letter to Stockholders: An Examination of Corporate Communication Strategy , 1992 .

[21]  G. Swales,et al.  Another Look at the President’s Letter to Stockholders , 1988 .

[22]  J. Thomas,et al.  Discourse in the Marketplace: The Making of Meaning in Annual Reports , 1997 .

[23]  Michael Lubatkin,et al.  Merger strategies and stockholder value , 1987 .

[24]  L. Preston,et al.  Research in Corporate Social Performance and Policy , 1981 .

[25]  R. Polley.  Exploring Polarization in Organizational Groups , 1987 .

[26]  E. Mannix,et al.  The Dynamic Nature of Conflict: A Longitudinal Study of Intragroup Conflict and Group Performance. , 2001 .

[27]  J. Hair.  Multivariate data analysis , 1972 .

[28]  Robert Waldersee,et al.  Espoused Values and Organizational Change Themes , 1995 .

[29]  Richard A. D'Aveni,et al.  Crisis and the Content of Managerial Communications: A Study of the Focus of Attention of Top Managers in Surviving and Failing Firms. , 1990 .

[30]  G. Gordon,et al.  Predicting Corporate Performance From Organizational Culture , 1992 .

[31]  Robert E. Hoskisson,et al.  Diversification Strategy and R&D Intensity in Multiproduct Firms , 1989 .

[32]  William H. Glick,et al.  Typologies As a Unique Form Of Theory Building: Toward Improved Understanding and Modeling , 1994 .

[33]  S. Finkelstein,et al.  Integrating Strategic, Organizational, and Human Resource Perspectives on Mergers and Acquisitions: a Case Study of Synergy Realization , 1999 .

[34]  K. Fowler,et al.  Determinants of tender offer post-acquisition financial performance , 1989 .

[35]  R. Campbell,et al.  A Theory of Leadership Effectiveness. , 1968 .

[36]  G. Yukl,et al.  Leadership in Organizations , 1981 .

[37]  Ronald J. Burke,et al.  Occupational stress: Recent findings and new directions , 1982 .

[38]  David J. Ketchen,et al.  THE APPLICATION OF CLUSTER ANALYSIS IN STRATEGIC MANAGEMENT RESEARCH: AN ANALYSIS AND CRITIQUE , 1996 .

[39]  K. Cameron,et al.  Diagnosing and changing organizational culture , 1999 .

[40]  Philip J. Stone,et al.  Extracting Information. (Book Reviews: The General Inquirer. A Computer Approach to Content Analysis) , 1967 .

[41]  A. Denisi,et al.  Communication with Employees Following a Merger: A Longitudinal Field Experiment , 1991 .

[42]  H. Barkema,et al.  Learning Through Acquisitions , 2001 .

[43]  Ali R. Malekzadeh,et al.  Acculturation in Mergers and Acquisitions , 1988 .

[44]  M. Lubatkin,et al.  CULTURAL DIFFERENCES AND SHAREHOLDER VALUE IN RELATED MERGERS: LINKING EQUITY AND HUMAN CAPITAL , 1992 .

[45]  S. Finkelstein,et al.  The Influence of Organizational Acquisition Experience on Acquisition Performance: A Behavioral Learning Perspective , 1999 .

[46]  John F. Veiga,et al.  Acculturation in Acquired Organizations: A Force-Field Perspective , 1994 .

[47]  J. Dutton,et al.  Advances in strategic management , 1994 .

[48]  Boris Kabanoff,et al.  Espoused Values of Organisations , 2002 .

[49]  Ann Buchholtz,et al.  The Role of Human Capital in Postacquisition CEO Departure , 2003 .

[50]  Jennifer A. Chatman,et al.  PEOPLE AND ORGANIZATIONAL CULTURE: A PROFILE COMPARISON APPROACH TO ASSESSING PERSON-ORGANIZATION FIT , 1991 .

[51]  M. C. Jensen.  The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy , 1987 .

[52]  C. Cooper,et al.  The role of culture compatibility in successful organizational marriage , 1993 .

[53]  J. B. Kusewitt.  An exploratory study of strategic acquisition factors relating to performance , 1985 .

[54]  M. Mentzer.  A Social-Contract Theory of Organizations , 1988 .

[55]  Harold D. Lasswell,et al.  The comparative study of symbols : an introduction , 1952 .

[56]  K. Weick.  The social psychology of organizing , 1969 .

[57]  P. Rosenzweig.  Managing Acquisitions: Creating Value Through Corporate Renewal , 1991 .

[58]  Michael D. Ensley,et al.  Shared cognition in top management teams: implications for new venture performance , 2001 .

[59]  Deepak K. Datta.  Organizational fit and acquisition performance: Effects of post-acquisition integration , 1991 .

[60]  A. Tsui,et al.  Configurational Approaches to Organizational Analysis , 1993 .

[61]  James L. Bowditch,et al.  When Cultures Collide: The Anatomy of a Merger , 1985 .

[62]  James L. Bowditch,et al.  The Human Side of Mergers and Acquisitions: Managing Collisions Between People, Cultures, and Organizations. , 1990 .

[63]  Eric L. Trist.  Socio-technical Systems , 1978, Encyclopedia of Social Network Analysis and Mining. 2nd Ed..

[64]  J. MacQueen.  Some methods for classification and analysis of multivariate observations , 1967 .

[65]  S. Schwartz.  Universals in the Content and Structure of Values: Theoretical Advances and Empirical Tests in 20 Countries , 1992 .