WHY M&As DAMAGE BRANDS: THE ROLE OF COUNTRY IMAGE

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WHY M&As DAMAGE BRANDS:

THE ROLE OF COUNTRY IMAGE

M.A.M. BUSCH s2320851

University of Groningen, The Netherlands

Faculty of Economics and Business

Master Thesis IB&M, re-sit

August 18, 2014

Supervisor: A. A. J. van Hoorn

Co-assessor: F. Pallas

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2 ABSTRACT

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In order to increase capacity and competitiveness, companies often make use of Mergers and Acquisitions (M&A) as a strategy to obtain technologies, products, distribution channels and desirable market positions (Schweizer, 2005). In the past years there has been a large increase in M&A activity (Ettenson & Knowles, 2006). Global M&A activity increased from $1.9 trillion in 2004 (Cartwright & Schoenberg, 2006) to a record-breaking $4.35 trillion in 2007 (Reuters, 2008). Even though the 2008 global financial crisis caused a slowdown in M&A activity, the numbers are still considerable, with $2.89 trillion in 2008 (Reuters, 2008). Although the number and worldwide value of total M&As has gone up, these deals often end up destroying value for the companies involved (Ettenson & Knowles, 2006). Bruner (2002) found that 70-80% of M&As do not create significant value above the annual cost of capital. M&As result in significant performance deterioration for the acquiring companies in the post-acquisition period (Zhu & Malhotra, 2008). Shareholder losses of 12% up to two years following deal announcement have been reported (Aw & Chatterjee, 2004). Other results show up to 50% M&A failure rates (Craninckx & Huyghebaert, 2011). Because of these high M&A failure rates, several researchers have analyzed the causes of M&A failure.

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5 brands) represent close to 80% of the value of the Standard & Poor`s 500 (Ettenson & Knowles, 2006). A brand can be one of the biggest assets of a company, as it forms the central link of communication between a firm and its consumers (DuBois Gelb & Rangarajan, 2014). The image or value of a brand consists entirely of the perceptions that customers have of it (Taylor, 2012). A shift in perception of these assets can bring enormous damage to a brand in a short period of time, while repairing the image and perceptions of a damaged brand can take years to restore, besides costing millions of dollars (Andrews & Kim, 2007; Taylor, 2012). Consumer uncertainty and subsequent brand damage might be especially relevant in the case of a cross-border M&A, as consumers use country of origin information to evaluate products and their brands (Han 1989). Cross-border M&As face unique challenges compared to domestic ones (Hofstede, 2001), and studies found that 53% of cross-border M&As destroy shareholder value (Filipovic, Podrug & Prester, 2012). Although consumer uncertainty might be a result of the change of company in general, some studies have explored how consumer uncertainty is effected by country image (e.g. Chang & Zhang, 2011; Lee & Lee, 2011; Lee, Lee & Wu, 2011). These studies found that country image plays a role in consumer evaluation in the case of cross-border M&As, and have suggested further investigation of this specific topic. When a firm has a negative country image, it can result in a liability of foreignness (Kostova & Zaheer, 1999). Because brands are at the front-end of customer interaction, proper brand management seems to be of significant importance for M&As between firms with different country images.

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7 2. BACKGROUND AND THEORY

In order to examine the relationship between country image and consumers` uncertainty regarding future customer performance of an acquiring firm this section focuses on reviewing the key concepts that are involved. First, the general background is introduced. This consists of M&A performance, brand damage, and consumer brand evaluation. Next, a number of relations regarding country image effects is identified, on which hypotheses are based. Finally, a conceptual model summarizes the discussed theory. The aim of the discussion is to explain the influence of country image in M&A related brand damage.

2.1. General background

2.1.1. M&A performance

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8 because firms are not able to maintain the brand`s value during the acquisition process (Lee & Lee, 2011). Thus, M&As may cause damage to the image of a company`s brand (Lee & Lee, 2011).

2.1.2. M&A related brand damage

Brand damage itself can be caused by something external to the company or can be self-inflicted (Taylor, 2012). External causes of brand damage can for example be spillover effects from scandals surrounding other companies (Tybout & Roehm, 2009). The influence of M&As on consumer brand perception is considered a self-inflicted cause of brand damage described by several researchers (e.g. Balmer & Dinnie, 1999; Jaju, Joiner & Reddy, 2006; Lee & Lee, 2011). As an intangible asset of a firm, brands are routinely involved in the M&A process (Chang & Zhang, 2011). Not giving enough attention to the branding of the company and its products before, during and after the M&A can be a huge blunder (Ettenson & Knowles, 2006). Customers’ knowledge of the company is somewhat limited, so they tend to react more emotionally and interpret events and changes in the company more cynically (Tybout & Roehm, 2009). M&As may increase consumers` uncertainty regarding the future performance of the acquiring company, for example towards price and quality (Homburg & Bucerius, 2005). This uncertainty may be enhanced further when the acquiring company has an inferior brand image and uses the acquisition to gain control over superior brand images. This is because consumers may have concerns regarding the ability of the firm to maintain the quality or prestige of the superior brand after the acquisition (Lee, Lee & Wu, 2011). Because a brand`s value consists entirely of the perceptions that customers have of it (Taylor, 2012), the customer point of view in evaluating the brand is of key importance in the identification of M&A related brand damage. However, little attention has been devoted to the impact of cross-border M&As on the consumers' evaluation of the newly acquired firm and its brand (Chang & Zhang, 2011). In the rest of this report, I will therefore go deeper into this issue.

2.1.3. Brand evaluation

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9 purchasing, and a positive brand image has the effect of lowering consumers’ perceived risks or increasing consumers’ perceived value (Wang & Tsai, 2014). Brand image is the incremental value added to a product by virtue of its brand (Washburn & Plank, 2002, p46). Keller (1993) defined brand image as “perceptions about a brand as reflected by the brand association held in consumer memory”. Another way of defining brand image has been given by Faircloth (2005), who says brand image is the overall mental image that consumers have of a brand, and its uniqueness in comparison to the other brands. As mentioned earlier, consumers may have concerns regarding the ability of the firm to maintain the quality or prestige of the brand after an acquisition (Lee, Lee & Wu, 2011). This perceived risk by consumers has been defined by Dowling and Staelin (1994) as a consumer's perceptions of the uncertainty and adverse consequences of engaging in an activity. These researchers also found that perceived risk increases as the probability of one or more negative outcomes increases. In case of an M&A, the possible negative outcomes for consumers are for example related to prices, product and service quality, and contact persons (Homburg & Bucerius, 2005). Because a positive brand image lowers consumers’ perceived risks (Wang & Tsai, 2014), it is likely that M&As have the effect of increasing the perceived risk, and thus negatively influencing the brand evaluation.

2.2. Hypotheses development

2.2.1. The effect of country image on brand evaluation

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10 company. Studies have shown that country image is a key factor in consumer`s perception of products (Roth & Romeo, 1992). Some studies have examined product and consumer attributes, and found differences in brand and product evaluation based on country image (Insch & Miller, 2005). Country image has been shown to affect consumer perceptions and overall evaluations of the product (Lee & Lee, 2011). Because of the earlier discussed negative influence of M&As on brand image it seems likely that country image has a strong effect on brand evaluation. I therefore propose the following hypothesis:

Hypothesis 1a. Country image affects the consumer brand evaluation of an acquired firm.

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12 capabilities. This asks for continuous upgrading of capabilities and skills after integration of M&A. Chang and Zhang (2011) reported more negative evaluations and lower purchase intention on brands acquired by Chinese firms, compared to acquiring firms closer to the country of origin. A product with a positive country image is evaluated more favorably by consumers than a product with a negative country image (e.g. Maheswaran, 1994; Ahmed, Johnson, Yang, Fatt, Teng & Boon, 2004). What matters here is “who” is doing the perceiving (Insch & Miller, 2005). In case of an emerging economy firm acquiring a firm from a developed economy, the local consumers in the developed country generally have a positive image towards their home country and a relatively negative image of the acquiring firm`s country of origin. The emerging economy firm in this case would face a liability of foreignness. In the situation where the target firm is located in a developed economy, this firm in general enjoys a favorable country image compared to a firm from an emerging economy. If it is than acquired by another domestic firm, it seems likely that the acquiring firm would be perceived more positively than an emerging economy firm. In this same context, it seems likely that a foreign firm from another developed economy executing a cross-border acquisition would also be perceived more positively compared to the emerging economy firm. Therefore I propose the following hypotheses:

Hypothesis 1b. A cross-border acquisition by an emerging economy firm will affect consumer brand evaluation more negatively than acquisition by a domestic firm.

Hypothesis 1c. A cross-border acquisition by an emerging economy firm will affect consumer brand evaluation more negatively than cross-border acquisition by a developed economy firm.

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13 negative country image, therefore depends on both the international image of the firm`s home country, as well as the perceived country image by local consumers towards their own home country. Leading from the discussion above, I argue that for analyzing whether the cross-border aspect has an influence on the perceived risk and uncertainty for consumers regarding the future performance of the acquiring company, a distinction should be made based on country image. I therefore argue that cross-border acquisitions do not necessarily more negatively influence the overall consumer brand (image) evaluation than a domestic acquisition, but that this depends on the country image of the acquiring firm. Based on the earlier made distinction between developed and emerging economies regarding country image, I hypothesize that the acquisition of a firm in a developed economy by a foreign firm from a similar developed economy will not significantly increase the influence on the consumer brand evaluation of the new company, compared to a domestic acquisition. Because both the host as well as the home country have a relatively positive country image in general, consumers` evaluation will not be more negatively affected. There is also a possibility that a benefit of foreignness effect occurs. However, this effect is expected to be small compared to the liability of foreignness in case of an acquisition by an emerging economy firm. The expected effect of a developed economy firm cross-border acquisition on a developed economy target firm is likely to be similar in brand evaluation effect. I therefore propose the following hypothesis:

Hypothesis 1d. A cross-border acquisition by a developed economy firm will affect consumer brand evaluation equally or less negatively than acquisition by a domestic firm.

I propose this hypothesis will hold within the experimental context of my research design, taking a target firm in a developed market economy as the domestic scenario. Consumers evaluating an acquisition on this type of firm will therefore also be local consumers of a developed economy. Taking into account this point of view, the hypothesis is a representation of a more general phenomenon.

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14 could be even more important than product-related aspects (Joubert & Poalses, 2012). The risks related to brand name substitution seem especially high in the context of cross-border acquisitions, since a liability of foreignness might be further increased by a foreign brand name. Unknown brand names from countries with a negative country image are therefore likely to suffer from an increased liability of foreignness. For firms who enjoy a benefit of foreignness on the other hand, their country image might be able to protect brand image after brand name substitution. Collange (2008) found that the stronger the image of the substitution brand name is compared to the existing brand name, the less will purchase intention and perceived quality be deteriorated. A strong brand name helps to control or stabilize the quality perceptions of a branded product (Grewal, Krishnan, Baker & Borin, 1998). Even when consumers have not had direct experience with a product, exposure to the brand name gives them a certain degree of familiarity (Grewal et al., 1998). Brand names to which consumers have been repeatedly exposed are evaluated more favorably by consumers than brand names to which exposure has been limited (Kohli, Harich & Leuthesser, 2005). Because many companies from emerging economies have only recently started to internationalize, most well-known global brands still come from developed economy countries. Consumers from developed economies have therefore only had limited exposure to the brand names of emerging economy firms. The findings from existing studies indicate that differences in brand name evaluation are related to country image. This makes it likely that brand name substitution plays a role in country image effect on brand evaluation after an acquisition. Therefore I propose the following hypothesis:

Hypotheses 2. Brand name substitution has a mediating effect on the influence of country image on brand evaluation.

2.2.3. The mediating effect of perceived quality on the influence of country image

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15 evaluation it is likely that it also has an effect on the influence that country image has on brand evaluation. Therefore I propose the following hypothesis:

Hypothesis 3. Perceived quality has a mediating effect on the influence of country image on brand evaluation.

2.2.4. The effect of brand evaluation on purchase intention

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16 2.3. Conceptual model

The above discussion and hypotheses can be summarized in a conceptual model as follows.

Figure 1: Conceptual model with hypotheses. Source: Author.

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17 3. MATERIALS AND METHOD

3.1. General approach

I tested my hypotheses by making use of a consumer survey conducted in the Netherlands. The data collected with this sample survey, is meant to serve as information on consumer brand evaluation from a subset of the population as a basis for estimating population values. The unit of analysis was therefore the individual consumer. The survey gathered data which was then used to analyze the impact of country image on the consumer brand image evaluation after an acquisition. More specifically, the fictive acquisition of the Dutch company International Netherlands Group (ING) was analyzed because this firm has a good brand image and the Netherlands (ING`s country of origin) in general has a relatively positive country image. This positive country image is apparent in terms of perceived product quality, safety, and prestige. Another reason to choose this firm is because the industry in which it operates is a category that lies somewhere in the middle of the continuum of the extent to which products are connected to local culture. It is active in a branch which I expect to be less sensitive to influences of specific product attributes. Its primary businesses are retail banking, direct banking, commercial banking, investment banking, asset management and insurance services. This fictive acquisition of the ING is split into three different scenarios: acquisition by a firm with a domestic country image, acquisition by a foreign firm with a developed economy country image, and acquisition by a foreign firm with an emerging economy country image. What was measured in the survey was the impact that this has on the consumer evaluation of the brand, in terms of brand evaluation, brand name evaluation, purchase intention and quality perception.

3.2. Implementation

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18 other hand it increases the likelihood that direct connections who want to help out are over-represented. To further check the survey for reliability and validity, a pilot was held. 7 people that were expected to represent the target group filled in the questionnaire while thinking out loud. Using these observations combined with feedback from the pilot respondents a number of issues were identified that could influence the validity of the questionnaire. Afterwards, the questionnaire was adjusted accordingly. After improving the questionnaire based on the input from the pilot study, the questionnaire was advertised through an emailing-list and with the use of social media, making use of availability sampling. Because of this, mainly respondents in the direct network of the author filled in the questionnaire. Because this might influence the distribution of respondents among age group, income and educational level, the results should be viewed in the light of these limitations regarding the sample group. The survey had 164 respondents of whom 142 completed the questionnaire. One respondent indicated not to be familiar with the ING Bank, and was therefore excluded from the results because this would influence the validity of the response. One of the categories for ‘education level’ (primary school) had only one case. This case was therefore removed from the sample in order to make the statistics more robust. The sample group was subdivided into three groups, which were randomly distributed by the online survey program. These subgroups were: acquisition of ING Bank by ABN AMRO Bank (domestic firm country image); acquisition of ING Bank by Deutsche Bank (foreign firm with developed economy country image); and acquisition of ING Bank by Bank of China (foreign firm with emerging economy country image). Table 1 gives a descriptive overview of the sample.

Table 1: Descriptive overview of the sample

Measure Frequency Percent

Total

Customer of ING Bank

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19 Education Secondary school MBO HBO University Missing Annual income < €20.000 €20.000 - €30.000 €30.000 - €40.000 €40.000 - €60.000 > €60.000 Missing 19 17 62 38 4 55 30 18 15 10 12 13.6 12.1 44.3 27.1 2.9 39.3 21.4 12.9 10.7 7.1 8.6

Because the questionnaire was promoted through social media and responses anonymous, it remains difficult to estimate the response rate. Overall, the response of 164 out of a pool of approximately 500 connections (around 33% response rate) seems comparable to the average internal survey response rates (30-40%). For an online questionnaire the response is quite high, especially when considering that response rates as low as 2% have been reported (Petchenik & Watermolen, 2011). The height of the response rate can most likely be explained by the fact that availability sampling was used.

To measure brand evaluation, brand name evaluation, purchase intention, and perceived quality I used a 5-point scale (Likert, 1932). This may distort results due to several biases such as acquiescence bias. In order to obviate the problem of acquiescence bias, balanced keying is used in the questionnaire design. For brand evaluation, a 5-point scale is used where respondents indicate their level of agreement with a statement used for measuring brand image. Here the lowest value,

strongly disagree, is coded 1, going up to strongly agree, coded 5. The same scale and coding are

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20 3.3. Testing the hypotheses

3.3.1. Methods of analysis

I tested my hypotheses by regressing the obtained data from the survey on explanatory and control variables. Regression served to validate the consistency between theory and obtained data. To test Hypothesis 1 (a, b and c), I ran a linear regression analysis with brand evaluation after acquisition as dependent variable and country image as predictor variable. The variable country image was coded 1 for domestic, 2 for developed economy and 3 for emerging economy. The measure was operationalized as dummy variables, and two (k-1) dummy variables (D) were constructed (developed economy and emerging economy country image), which were coded 1 for a specific country image, and 0 for any other country image. The regression analysis should show whether there is a significant relation between country image and brand evaluation or not. Because both brand name, perceived quality and brand evaluation are ordinal variables, they did not need to be recoded into dummy variables.

To check for a mediating effect of brand name substitution and perceived quality on the influence of country image on brand evaluation, I used several regression models. However, it was not possible to use the traditional causal steps approach of Baron and Kenny (1986) because the independent variable involved (country image) is multicategorical. Although some researchers have used a variant of the causal steps method, I chose to make use of Hayes and Preacher`s (2008) work on statistical mediation analysis with a multicategorical independent variable. Because there is no single effect of country image on the (hypothesized) mediators or directly on the outcome variable (brand evaluation), parameter estimates of the three country image categories minus one were needed. I hereby relied on the fact that mean differences can be estimated with a linear model by representing the categories with a set of k-1 variables, where k is the number of categories. By doing this, the model, parameter estimates, and model fit statistics have the information about how the k categories differ from each other. As with the earlier discussed analyses, I here also used indicator (or dummy) coding. To dummy code the three groups of country image, two (k-1) dummy variables (D) were constructed (developed economy and emerging economy country image), with Di set to 1 if a case is in group i, and 0 otherwise. Domestic country image was not explicitly coded and functioned as the reference category in the analysis. All k-1 D variables were set to zero for cases in that group. Group differences found were quantifications relative to domestic country image. Two effects were measured, namely the indirect effect and the direct effect. The indirect effect of country image (X) on brand evaluation (Y) through brand name substitution (M1)/

perceived quality (M2) is the product of path a (effect of X on M) and b (effect of M on Y). The

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21 mediation models. I estimated the mediation models with the PROCESS tool in SPSS, with brand name substitution or perceived quality as mediator, one of the two dummy variables as independent variable and the other one as covariate. Because no interrelationship has been found in the literature, I did not estimate a model with the two mediators (brand name substitution and perceived quality) together. Before looking at any mediating effect, I first checked for a direct effect, because if there is no direct effect we cannot speak of mediation. The next step was to infer for indirect effects. The indirect effect of X (country image) on Y (brand evaluation) should be different from zero. Evidence that at least one relative indirect effect is different from zero supports the conclusion that M mediates the effect of X on Y (Hayes & Preacher, 2008). Based on the work of Hayes and Preacher (2008) I made use of the asymmetric bootstrap confidence interval (CI) for statistical inference about indirect effects. A benefit of this method is that it does not make the unwarranted assumption of normality of the sampling distribution of the relative indirect effect. The relative indirect effect is deemed statistically different from zero if the confidence interval does not straddle zero.

3.3.2. Reliability and validity

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23 4. RESULTS

This section focuses on the analysis of the data collected from the survey, concerning the effect of different types of acquisitions (considering country image) on consumer brand evaluation. I estimated several regression models based on the theoretical hypotheses formed in section 2. In this section I provide a discussion of the theoretical constructs that were tested in the analysis, and answer the hypotheses.

4.1. Baseline results: the direct effects on brand evaluation of an acquired firm

52.1% of the total sample gives a negative evaluation on brand image (disagree or strongly disagree). 36.4% is neutral (neither agree nor disagree), and exactly 10% gives a positive evaluation to the acquisition (agree or strongly agree). This suggests that within this experiment acquisition in general has a negative effect on consumer brand evaluation, regardless of the country of origin of the acquiring firm. I will now discuss the possible effect on brand evaluation when country image is taken into account.

4.1.1. The effect of country image on brand evaluation

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Table 2: Regression coefficients, effect of country image on brand evaluation

Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 Developed .073 .174 .040 .420 .675 Emerging -.421 .170 -.237 -2.475 .015

a. Dependent variable: Overall brand image b. Default dummy variable = domestic acquisition

4.1.2. The effect of an emerging economy country image on brand evaluation

Hypothesis 1b stated: A cross-border acquisition by an emerging economy firm will affect consumer

brand evaluation more negatively than acquisition by a domestic firm. Hypothesis 1c stated: A cross-border acquisition by an emerging economy firm will affect consumer brand evaluation more negatively than cross-border acquisition by a developed economy firm. Table 2 shows the

regression coefficients between the dummy variables as predictor variables for country image and brand evaluation as the response variable. When running the regression with domestic acquisition as default (with developed and emerging as predictor variables) the results show that acquisition by an emerging economy firm is evaluated more negatively than acquisition by a developed economy firm or by a domestic firm from a developed economy. The domestic and developed scenario show a positive B-value of respectively 0.421 (p= 0.015) and 0.494 (p= 0.005). This suggests that both the domestic and developed scenario are evaluated less negatively than emerging markets, based on the mean difference (since an overall negative evaluation was found earlier). Because both results are statistically significant (p< 0.05) I conclude that there are grounds to believe that both hypothesis 1b as well as 1c are supported.

4.1.3. The effect of a developed economy country image on brand evaluation

Hypothesis 1d stated: A cross-border acquisition by a developed economy firm will affect consumer

brand evaluation equally or less negatively than acquisition by a domestic firm. The results in table

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25 economy firm affects consumer brand evaluation equally or less negatively than acquisition by a domestic firm. The fact that no significant difference is found however, does point to the possibility that country images of the home country of the target firm and that of the foreign firm from a developed economy are very similar. This confirms the expectations, especially taking in mind the specific countries used in this experiment. These countries are the Netherlands and Germany, which are expected to be very similar in country image, especially compared to China (the other country used in the experiment).

4.2. Extension: mediation on the effect of country image on brand evaluation

Section 4.1 shows that the results support a direct effect of country image on brand evaluation. In order to check for indirect effects through mediating variables further analysis is required. To test for a mediating effect on the influence of country image on brand evaluation by brand name or perceived quality I used Hayes` PROCESS application in SPSS.

4.2.1. The mediating effect of brand name substitution

Hypothesis 2 stated: Brand name substitution has a mediating effect on the influence of country

image on brand evaluation. I measured the effect of brand name substitution on the influence of

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26 substitution, we cannot speak of mediation. The effect seems to only take place through brand name substitution. It is interesting to note though, that both developed (B= -.421 and p= .032) and emerging economy country image (B= -.698 and p< .001) have a significant effect on brand name substitution. Leading from this analysis, the results do not support a claim that brand name substitution functions as a mediator of the effect of country image on brand evaluation. I therefore conclude that the experiment does not provide results that support hypothesis 2 (which proposes that brand name substitution has a mediating effect on the influence of country image on brand evaluation).

Table 3: mediation of brand name substitution

Outcome: Brand name substitution

Model B Std. Error t Sig. LLCI ULCI

Developed -.421 .194 -2.169 .032 -.805 -.037

Emerging -.698 .190 -3.673 .000 -1.073 -.322

Outcome: Brand evaluation

Brand name .476 .066 7.250 .000 .346 .605

Developed .273 .150 1.816 .071 -.024 .571

Emerging -.089 .152 -.589 .557 -.390 .211

Direct effect of X on Y

Model Effect Std. Error t Sig. LLCI ULCI

Developed* .273 .150 1.816 .071 -.024 .571

Emerging** -.089 .152 -.589 .557 -.390 .211

Indirect effect of X on Y

Effect Boot Std. Error Boot LLCI Boot ULCI

Brand name* -.200 .103 -.424 -.022

Brand name** -.332 .106 -.576 -.166

a. Mediator: brand name substitution

b. Default dummy variable: domestic acquisition

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27 4.2.2. The mediating effect of perceived quality

Hypothesis 3 stated: Perceived quality has a mediating effect on the influence of country image on

brand evaluation. I measured the effect of perceived quality on the influence of country image on

brand evaluation using mediation analysis. The results are displayed in table 4. The predictor variable (country image) predicts the mediator (perceived quality) in the case of emerging economy country image (p= .013), but is not significant for developed economy country image (p= .961). Perceived quality predicts brand evaluation (B= .243 and p= .026). Similarly to the effect of X (country image) on M (perceived quality), the direct effect of X on Y (brand evaluation) is only significant for emerging economy country image (p= .012). The effect of developed economy country image is not found significant (p= .961). The results from all regressions show an indirect effect different from zero (effect size= .009 for developed economy country image; effect size= .011 for emerging economy country image), which would suggest mediation. However, the results yield 95% bias-corrected bootstrap confidence intervals that straddle zero (based on 1000 bootstrap samples), indicating that developed economy country image as well as emerging economy country image (relative to the control variable) do not indirectly influence brand evaluation through perceived quality (developed economy: 95% CI= -.336 to .353; emerging economy: 95% CI= -.056 to .129). A claim that perceived quality functions as a mediator of the effect of country image on brand evaluation cannot be supported. I therefore conclude that the experiment does not provide results that support hypothesis 3 (perceived quality has a mediating effect on the influence of country image on brand evaluation). What can be concluded is that the results support a direct effect of emerging economy country image on brand evaluation, compared to domestic country image.

Table 4: mediation of perceived quality

Outcome: Perceived quality

Developed .266 .137 1.935 .055 -.006 .537

Emerging .046 .135 .339 .735 -.221 -.313

Outcome: Brand evaluation

Perc quality .243 .108 2.225 .026 .029 .457

Developed .008 .174 .049 .961 -.336 .353

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28 Direct effect of X on Y

Model Effect Std. Error t Sig. LLCI ULCI

Developed* .008 .174 .049 .961 -.336 .353

Emerging** -.428 .169 -2.532 .012 -.763 -.094

Indirect effect of X on Y

Effect Boot Std. Error Boot LLCI Boot ULCI

Perc. quality* .065 .051 -.004 .200

Perc. quality ** .011 .043 -.0564 .1288

a. Mediator: perceived quality

b. Default dummy variable: domestic acquisition

c. *= developed economy as independent variable, emerging economy as covariate; **= emerging economy as independent variable, developed economy as covariate

Because no interrelationship between the mediators brand name substitution and perceived quality has been hypothesized in the conceptual model, I will not discuss regression with multiple mediators (both brand name and perceived quality).

4.3. The effect of brand evaluation on purchase intention

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29 between the country images. Interesting to see here is that purchase intention for both developed and emerging country image is significantly smaller than that of domestic country image. Developed economy country image shows B-value of -0.605 (p= 0.017) and emerging economy country image shows B-value of -0.723 (p= 0.004). The results therefore suggest that there is also a relation between country image and purchase intention, which is itself effected by brand evaluation. The relation between brand evaluation and purchase intention is also reflected in the frequencies of individual answer categories per variable. Brand evaluation shows a total negative evaluation (strongly disagree and disagree) of 52.9% of the responses. For purchase intention the total negative response (very unlikely and unlikely) is 49.6%.

Table 6: Regression coefficients, effect of brand evaluation on purchasing intention

Model Unstandardized Coefficients Standardized

Coefficients t Sig. B Std. Error Beta 1 Brand name evaluation .491 .119 .336 4.120 .000 2 Developed -.605 .250 -.234 -2.417 .017 Emerging -.723 .245 -.286 -2.956 .004

a. Dependent variable: Purchase intention

b. Default dummy variable (in model 6)= domestic acquisition

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30 5. DISCUSSION

In this last part of the report, the main findings and their implications are discussed and sought to be explained. Limitations and future research suggestions are also commented on.

5.1. General discussion

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32 than products from developed economies (Chao, Wuhrer & Werani, 2005). In general the results of my analysis suggest a negative effect of M&As on consumer brand evaluation, in both domestic as well as cross-border acquisitions. This further suggests that brand damage is likely to occur after an acquisition which is in line with existing evidence. It also contributes to the exploration and identification of the underlying causes of M&A related brand failure from a consumer-based perspective.

5.2. Limitations

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33 level of methodology, one other limitation is the use of single-item measures in constructing the questionnaire. Although this approach will most likely result in a higher response rate of the survey, it also brings issues with testing for reliability and validity. Future research could use multiple-item measures, or other methods to increase reliability and validity, such as test-retest. When making use of multiple-item measures, the items can then be tested for correlations (e.g. using Cronbach`s coefficient alpha). In order to keep the survey short and the response rate high, future experiments could implement a simplified conceptual model. For example, the focus could lie solely on purchase intention, leaving the other concepts out and leaving more space for a multiple item measure. Lastly, although my analysis explores the causes that may underlie M&A related brand damage, it is not conclusive in actually explaining M&A failure. To make more well-rounded conclusions on the causes of M&A failure, researchers should develop methods of measurement to capture these types of conclusions. Future development of a multi-dimensional model of M&A related brand damage might help to overcome this limitation.

5.3. Future research

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34 so that the results can be compared with those of other studies which will increase reliability. To check for robustness, future studies can also compare their mediation analysis based on the method of Hayes and Preacher (2008) with tests using the traditional causal steps approach.

5.4. Conclusion

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43 ABOUT THE AUTHOR

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44 APPENDIXES

APPENDIX A

Questionnaire: the influence of country image on brand evaluation after an acquisition

Thank you very much for your participation in this survey. The survey is conducted as part of a master thesis project at the University of Groningen, and the results are used solely for academic purposes.All information you give during this survey is treated completely anonymously. For any questions you can email to m.a.busch@student.rug.nl. Please select the most suitable answer. Once a question is answered, it is not possible to browse back.

Part A

A1. Are you familiar with ING Bank? 1. Yes (Continue with question A2)

2. No (The rest of the survey is only suitable for people familiar with ING Bank. Please click on EXIT to finish the survey. Thank you for your effort)

A2. Are you a customer of ING Bank? 1. Yes

2. No

Part B

B1. What is your age? Day – Month - Year

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45 2. Female

B3. What is the highest level of education you have attended? 1. Primary school

2. Secondary school 3. MBO

4. HBO 5. University

B4. What is roughly your total annual net income, meaning income after taxes (including holiday allowance)? If you do not know your annual salary, you can multiply your monthly net wage by 13.

The rest of this questionnaire will consist of a fictive case in which a Dutch bank (for example ING Bank) has recently been acquired by <another Dutch / a foreign> bank, specifically < ABN Amro Bank / Deutsche Bank / China Bank > <blank / from Germany / from China>.

Part C

C1. Please indicate how much you agree or disagree with the following statement:

The acquisition of ING Bank by <company> influences my overall image of the company in a positive way.

1. Strongly disagree 2. Disagree

3. Neither agree nor disagree 4. Agree

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46 C2. It is likely that, because of the acquisition, the name of ING Bank will be changed to the name of the acquirer, <ABN AMRO, Deutsche Bank, China Bank>.

Please indicate how much you agree or disagree with the following statement: The new name influences the way I feel about the bank.

1. Strongly disagree 2. Disagree

3. Neither agree nor disagree 4. Agree

5. Strongly agree

Part D

D1. How likely are you to continue to make use of the products/services of the new bank that will come into existence after the acquisition of ING Bank by <company> in the next year?

1. Very unlikely 2. Unlikely 3. Not sure 4. Likely 5. Very likely Part E

E1. How do you think that an acquisition of ING Bank will affect the quality of ING`s products and services?

1. Much higher quality 2. Higher quality

3. Neither lower nor higher quality 4. Lower quality

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47 APPENDIX B

Questionnaire design

The survey looks is build up using the following topics:

Introduction

First a check is done to see if respondents are familiar with the ING Bank. If they are not familiar with it, they will not be able to finish the survey.

Demographic information

Demographic variables such as age and income are measured, to see if these variables play a specific role in the results.

Brand and brand name evaluation

To measure the consumer brand image evaluation, a 5-point Likert scale is used. A statement is presented and respondents can show their level of agreement.

Purchase intention

For measuring the purchase intention of consumers towards the acquired company, a single-item common purchase intention scale is used. Since the decision to use one of the products or services of this company will have longer term consequences for the consumer (from opening a bank account to closing a mortgage) a relatively long window of time for making the purchase is used (one year).

Perceived quality

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48 APPENDIX C

Summary test results Qualtrics – Brand evaluation and country image survey 2014

General evaluation of acquisition (response %)

Answer ABN AMRO Bank Deutsche Bank Bank of China

Strongly disagree 4 7 16

Disagree 41 36 53

Neither agree nor disagree 46 40 27

Agree 7 16 4

Strongly agree 2 2 0

Brand name evaluation (response %)

Strongly disagree 9 22 22

Disagree 33 36 57

Neither agree nor disagree 39 29 14

Agree 15 13 6

Strongly agree 4 0 0

Purchase intention (response %)

Very unlikely 18 25 27

Unlikely 18 27 33

Not sure 29 30 27

Likely 18 16 10

Very likely 18 2 2

Quality perception (response %)

Much higher 2 0 2

Higher 11 22 8

Neither higher nor lower 57 71 69

Lower 30 4 19

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49 APPENDIX D

Survey results graphs

Overall brand evaluation

Please indicate how much you agree or disagree with the following statement: “The acquisition of

the ING Bank by the <acquiring Bank> influences my overall image of the company in a positive way.”

In percentages of respondents per subgroup.

Brand name

It is likely that, because of the acquisition, the name of ING Bank will be changed to the name of the acquirer, <ABN AMRO, Deutsche Bank, Bank of China>. Please indicate how much you agree or disagree with the following statement:

“The new name influences the way I feel about the bank.” In percentages of respondents per subgroup.

0 10 20 30 40 50 60 Domestic acquisition Cross-border acquisition developed economy Cross-border acquisition emerging economy Strongly disagree Disagree

Neither agree nor disagree Agree

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50 Purchase intention

How likely are you to make use of the products/services of the new bank that will come into existence after the acquisition of the ING Bank by the <acquiring Bank>, in the next year? In percentages of respondents per subgroup.

Quality perception

How do you think that an acquisition of the ING Bank (by the <acquiring Bank>) will affect the quality of ING`s products and services?

“The quality will be...”

In percentages of respondents per subgroup.

0 10 20 30 40 50 60 Domestic acquisition Cross-border acquisition developed economy Cross-border acquisition emerging economy Strongly disagree Disagree

Neither agree nor disagree Agree Strongly agree 0 5 10 15 20 25 30 35

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51 0 10 20 30 40 50 60 70 80

Domestic acquisition Cross-border acquisition developed economy Cross-border acquisition emerging economy Much higher Higher

Neither higher nor lower Lower

WHY M&As DAMAGE BRANDS: THE ROLE OF COUNTRY IMAGE