MERGER PERCEPTION, MERGER SYNDROME AND POST-MERGER IDENTITY: A NEW TAKE ON MERGER SUCCESS PREDICTORS
Master thesis, MSc Human Resources Management University of Groningen, Faculty of Economics and Business
July 2nd, 2018 Manon Sieurin S2930064 Turfsingel 24 9712KR Groningen +31(0)6 55 8384 10
Supervisor: dr. Susanne Täuber Word Count: 11.671
ABSTRACT
In this paper, I propose that the way employees perceive a merger will predict the success of the merger, as indicated by identification of the post-merger identification (PMI). I suggest that perceiving a merger in terms of threat versus opportunity/growth is a crucial predictor of employees’ responses to organizational change, with threat perceptions affecting negatively the merger syndrome and PMI and growth perceptions affecting it positively. I expect that these effects would be perceived more strongly by low-status employees than by high-status ones. This research was conducted through an online experiment, where participants were assigned to one of four conditions of a 2 (merger perception: growth, threat) x 2 (pre-merger status: high, low) between-subjects design. Contrary to hypothesized, perceived necessity negatively mediated the effect of merger perception on PMI. Theoretical and practical implications are discussed.
TABLE OF CONTENTS Abstract ... 1 Introduction ... 4 Theory ... 6 Post-Merger Identity ... 6 Merger Perception ... 7 Merger Syndrome ... 8 Identity Continuity ... 9 Perceived Legitimacy ... 9 Perceived Necessity ... 10 Expected Utility ... 10 Certainty ... 11
Support of the Merger ... 11
Status Differences in Mergers ... 12
Overview of the Hypotheses ... 12
Method ... 14
Participants ... 14
Design and Procedure ... 14
Pre-Test ... 15
Measures ... 16
Manipulation Check: Status and Merger Perception ... 16
Post-Merger Identity ... 17
Identity Continuity ... 17
Perceived Legitimacy ... 17
Expected Utility ... 18
Certainty ... 18
Support of the Merger ... 18
Demographics... 18 Results ... 19 Manipulation Checks ... 19 Descriptive Analysis ... 19 Hypothesis Testing ... 22 Hypothesis 1 ... 22 Hypothesis 2 ... 22 Exclusion of Variables ... 23
Hypothesis Testing with Regression Analyses ... 24
Hypothesis 3 ... 24
Hypothesis 4 ... 27
Discussion... 31
Hypotheses and Findings ... 31
Theoretical Implications ... 32
Practical Implications ... 33
Limitations and Future Research ... 34
Conclusion ... 36
References ... 37
Appendixes... 43
Appendix 1: Experiment Manipulation ... 43
INTRODUCTION
2017 set new records regarding mergers and acquisitions (M&A), as more than 50.000 M&A deals were announced worldwide for the third year in a row (Gomes-Casseres, 2018). Whether they better reputations, increase competitive advantage or open new markets (Faulkner, Teerikangas, & Joseph, 2012) for the acquirers, M&A also bring stability and previously unreachable resources to acquired firms (Senior & Swailes, 2010). However, the psychological impact of mergers on employees has become an underestimated obstacle to the success of the merger (Bramson, 2000; Giessner, Horton & Humborstad, 2016), leading to many M&A failing every year (Thanos & Papadakis, 2013). Thus, managing employees’ merger perception with HRM practices to reduce instability (Bryson, 2003) and distress (Marks & Mirvis, 2001) is critical for firms to ensure the success of mergers.
Past study have successfully applied the Social Identity Approach to explain the negative outcomes of mergers driven by human aspects (i.a. Giessner, Viki, Otten, Terry, & Täuber, 2006; Gliebs, Noack & Mummendey 2010; Terry, 2001; van Leeuwen, van Knippenberg, & Ellemers, 2003). Employees define themselves as individuals, with individual characteristics, and as members of their organization, with characteristics of said organization (Mael & Ashforth, 1992). This organizational identification (OI) fulfils the employees’ need to belong (Baumeister & Leary, 1995), increases employee’s job satisfaction (Jetten, Haslam, & Haslam, 2011), decrease negative employee behaviours (Riketta, 2005), and increases support for the organization (Mael & Ashforth, 1992).
Giessner, 2011). Many factors have been found to negatively affect PMI, such as lack of identity continuity (van Knippenberg, van Knippenberg, Monden & de Lima, 2002), uncertainty (Giessner, 2011), little support of the merger (Giessner, et al., 2006), lack of expected utility (Bartels, Douwes, de Jong & Pruyn, 2006), little perceived necessity (Giessner, 2011) and little perceived legitimacy of the merger (Gleibs et al., 2011). These factors are part of the ‘merger syndrome’, defined as “the set of negative reactions from employees of acquired and merged firms” (Paustian-Underdahl et al., 2017: 164). This also means that reversing the above factors will benefit PMI.
THEORY Post-merger identity.
As previously mentioned, individuals will identify as employees of an organization with the characteristics of said organizations (Mael & Ashforth, 1992), also called OI. Previous studies have shown the importance of OI in organizations, as it affects employees’ satisfaction (Jetten, et al., 2011), their behaviours in the organization’s best interest (Riketta, 2005; Dutton, Dukerich & Harquail, 1994), and their support for the organization (Mael & Ashforth, 1992).
Merger will create conflict in employees’ OI as it will impose new organizational characteristics from the newly merged organization on a previously adopted set of organizational characteristics from the old organization. The magnitude of this conflict between employees’ pre-merger identity and PMI will depend on the merger strategy agreed upon by the merging organization. Either one of both merger partners will need to adapt their OI to conform to this strategy and ensure the success of the merger. In most cases, changes in OI is more prevalent in low-status partners, while high-status organizations tend to keep their OI intact. When the merger is completed, this newly set identity is regarded as PMI.
Merger perception
Mergers will appear differently to the different stake- and shareholders, depending on their status and needs. Ample evidence suggests that employees will perceive mergers as threatening. The information provided to and received by the employees about the merger from the very beginning of the merger process will determine which way the merger is perceived by the employees (Monin, Noorderhaven, Vaara, & Kroon, 2013; Vaara, 2003). This perception in turn will affect the ‘openness’ of employees to adhere to the post-merger identity. Following Paustian-Underdahl et al. (2017), mergers can be perceived in two ways: either as a threat (or hindrance), to either the individual directly or the organization, or as an opportunity (or positive challenge). Seeing a merger as an opportunity for the organization to grow could provide pride, direction and certainty for employees going through the change. On the other hand, seeing this change as a threat could add pressure on the employees due to uncertainty and expectations.
participation in the merger (Jackson & Dutton, 1988; Martocchio 1992), and facilitate the identity transition to the PMI (Paustian-Underdahl et al., 2017).
Based on these findings, I propose that:
Hypothesis 1: Growth perceptions have a more positive impact on PMI compared to threat perceptions.
Merger syndrome
As mergers can affect diverse behaviours and reactions of employees, it is important for management to understand these effects to either enhance or counter them to ensure the merger’s success. Mergers have been studied quite extensively and a variety of variables has been shown to affect PMI. These variables are grouped under the umbrella term of ‘merger syndrome’, defined as “the set of negative reactions from employees of acquired and merged firms”, such as “decreased job and organizational satisfaction, increased stress and anxiety, and turnover” (Paustian-Underdahl et al. 2017: 164). These effects should not be seen as surprising considering mergers bring forward restructuring and potential lay-offs. In this study, I will include the following concepts in the merger syndrome: perceived identity continuity, perceived legitimacy of the merger, perceived necessity of the merger, expected utility of the merger, feelings of certainty, and support of the merger. The inclusion of these concepts is relevant for this research as they relate behaviours and reactions found and measured in SIA. Thus, I propose the following, which will be detailed and argued below:
Hypothesis 2: The previously mentioned concepts are more positively influenced by growth perceptions compared to threat perceptions.
Identity Continuity. Severe changes, such as mergers, often influence employees’ sense
of continuity (van Knippenberg, et al., 2002). As mentioned before, identity is central to the membership of groups and relationship within the group (Tajfel & Turner, 1986). Identity continuity during such changes can help employees’ identity transition from one group to another, as they can have a baseline to refer to in this continuity (van Leeuwen, van Knippenberg & Ellemers, 2000). As such, it is easier for employees to identify with the post-merger organization if they see a continuity between their pre- and post-post-merger identity (van Leeuwen et al., 2003; Boen, Vanbeselaere & Wostyn, 2010; Gliebs, Mummendey, & Noack, 2008; Sacchi, Carnaghi, Castellini & Colombo 2013). Hence, I argue that the perceived sense of identity continuity will positively affect PMI.
Hypothesis 2a: Growth perceptions will lead to greater perceived identity continuity compared to threat perceptions.
Hypothesis 3a: Perceived identity continuity positively mediates the effect of merger perception on PMI.
Perceived Legitimacy. According to Amiot, Terry and Callan (2007) and Gleibs et al.
Hypothesis 2b: Growth perceptions will lead to greater perceived legitimacy of the merger compared to threat perceptions.
Hypothesis 3b: Perceived legitimacy positively mediates the effect of merger perception on PMI.
Perceived Necessity. The perceived necessity of a merger can be defined as “the
employee’s perception of the merger as motivated by the managerial and strategic aims of growth and/or survival of the organization” (Giessner, 2011: 1082; c.f. Boen, Vanbeselaere, Hollants & Keys 2005a; Boen, Vanbeselaere & Sinnen, 2005b). By giving meaning to the merger process though a clear picture of the common fate of the merged organizations, such as an opportunity for the organizations to grow, this reduces employee’s feeling of uncertainty toward the merger (Hogg, 2007), and positively influence post-merger identification (Boen et al., 2005a, 2005b; Ullrich, Wieseke & van Dick, 2005).
Hypothesis 2c: Growth perceptions will lead to greater perceived necessity of the merger compared to threat perceptions.
Hypothesis 3c: Perceived necessity positively mediates the effect of merger perception on PMI. Expected Utility. As mergers can help organizations enter new markets or acquire new
technology, it is natural to expect that mergers would improve procedures and policies, as to make the post-merger organization more productive and efficient (Bartels et al., 2016). Although little research has been done on this concept regarding mergers, Bartels et al. (ibid.) showed that PMI is positively affected by positive feelings of expected utility in the merger by employees, and is as such a good predictor for PMI.
Hypothesis 2d: Growth perceptions will lead to greater expected utility of the merger compared to threat perceptions.
Certainty. Many studies have found that extreme organizational changes, such as
mergers, create strong levels of uncertainty in employees (Marks and Mirvis, 2001; Schweiger and DeNisi, 1991), impacting the behaviour and well-being of these employees. This is because organizational changes transform the current situation into a new future and often an abstract one, causing employees to feel uncertain about their own future and the future of the organization (ibid.). Hogg (2007) argues that, to decrease this uncertainty, individuals increase their identification with other groups. Many studies have shown the impact of uncertainty on employee’s OI (Giessner et al., 2006; Jetten, O’Brien & Trindall 2002; Terry, 2001; Ullrich et al., 2005), which, unfortunately, promote stronger identification with the pre-merger identification rather than the PMI (Gleibs et al., 2008; Haunschild, Moreland & Murrell, 1994; Terry, 2001). This means that uncertainty usually inhibits PMI (Giessner, 2011).
Hypothesis 2e: Growth perceptions will lead to greater feelings of certainty compared to threat perceptions.
Hypothesis 3e: Certainty positively mediates the effect of merger perception on PMI.
Support of the merger. Studies have found that the support of the merger by the
employees of the merging organizations has a positive influence on the success of the merger, in a way that employees supporting any organization change are more likely to commit and comply with the change requirements (Giessner, et al. 2006). As for mergers, this means that employees would need to change their OI to identify with the PMI. However, mergers do not always get the support of the employees involved. Non-supportive employees will often turn to negative and resisting behaviours, which, in turn, will be hindering the success of the merger.
Hypothesis 2g: Growth perceptions will lead to greater support of the merger compared to threat perceptions.
Moderator: Status Differences in Mergers
It is important to note that most mergers are not mergers of equals (Cartwright & Cooper, 1996; van Oudenhoven & de Boer, 1995). This means that organizations entering a merger process will have different power status. According to Terry et al. (2001), both low- and high-status organizations will compete to optimize their status in the new organization, whether it is to maintain or increase their status. This aspect has critical implications for the success of the merger, as initial status differences often become stronger during the merger (ibid.).
This will entail that both groups will evaluate the costs and benefits related to their group membership. Within the threat perception, perceiving the costs of the merger stronger than the benefits, both low and high statuses will feel threatened by the merger, more so by the low status (ibid.), and will act in a way it optimizes their status in the new organization (i.e. negatively). However, within the growth perception, perceiving the benefits higher than the costs, both groups will embrace the opportunity of growth, again more so by the low status group. In both cases, the low status group has more to lose (or to gain) than the high status group. Thus, I propose that:
Hypothesis 4: Pre-merger status moderates the relations between merger perception (growth vs. threat) and the merger syndrome variables (identity continuity, perceived legitimacy, perceived necessity, certainty, and support of the merger), such that the effects are more pronounced for the low status compared to the high status group.
Overview over the Hypotheses
Hypothesis 2: Growth perceptions have a more positive impact on identity continuity, perceived legitimacy, perceived necessity, certainty, and support of the merger compared to threat perceptions.
Hypothesis 3: Identity continuity, perceived legitimacy, perceived necessity, certainty, and support of the merger positively mediate the effect of merger perception on PMI.
Hypothesis 4: Pre-merger status moderates the relations between merger perception (growth vs. threat) and the merger syndrome variables (identity continuity, perceived legitimacy, perceived necessity, certainty, and support of the merger), such that the effects are more pronounced for the low status compared to the high status group.
METHOD Participants
Participants were recruited via Amazon MTurk platform. Before starting the study, they had to agree to an informed consent form, requiring them to be at least 18 years old, to voluntarily agree to participate and to have read the provided information on the study and the treatment of the collected data. They received $1.50 for completing the survey. They were debriefed about the study after its completion. If interested, the participants could request a copy of the study by providing their email address.
Out of the received 490 entries, 27 were discarded for non-completion of the survey and 18 for being outliers, providing a sample of 445. 50.8% of the participants were male, 62.4% of the participants had completed at least a bachelor degree, 98.7% were employed and 61.2% were managers. The participants were on average 39 years old (SD = 10.33) and had a tenure of 7.67 years in their current organization (SD = 5.99).
Design and Procedure
Participants were randomly assigned to one of four conditions of a 2 (pre-merger status: high, low) x 2 (merger perception: growth, threat) matrix, receiving one of the following condition: High-Growth, High-Threat, Low-Growth, Low-Threat. They were asked to imagine being a middle-manager at BOLT Bank, with good working condition (see Appendix), and then asked to fill in a short questionnaire to measure their identification with BOLT Bank.
CEO announcing the merger, with extra information describing the post-merger operations (e.g. Control of operations: headquarters of BOLT, smaller extent by ACME {high} / headquarters of ACME, smaller extent by BOLT {low}; Name: BOLT-ACME {high} / ACME-BOLT {low}; ibid.).
Merger perception was manipulated with the email, differing per condition (see Appendix). Participants in the growth condition received a positive email toward the merger, emphasizing the growth potential of and new opportunities for the organization. In this case, ACME is shown as an innovator. On the other hand, participants with the Threat perception received a negative email, emphasizing on the need to cut costs to stay competitive and the challenges ahead for this merger. In this case, ACME is shown as a competitor of BOLT. After these manipulations, participants had to fill in the main questionnaire.
Pre-Test. Before the main study, I tested the viability of the manipulations of merger
perception and of status in a pre-test. The survey included the merger perception manipulations mentioned above in the lower-status condition and their respective manipulation checks (see section below). It was completed by 196 participants1 who received it via social media (Facebook, LinkedIn, Reddit) or through survey-swapping websites2. I also tested whether a survival condition could be considered neutral compared to the growth and threat scenarios, as it can be seen as an opportunity to grow but also as a threat from closure3. However, this was not the case, as it mostly recorded means outside of the interval created by the means from the growth and threat scenarios. As such, this condition was discarded altogether.
As expected in the low status condition4, participants recorded low means before (MGrowth = 2.28, SD = 1.22; MThreat = 2.33, SD = 1.36) and after (MGrowth = 2.38, SD = 1.16;
MThreat = 2.20, SD =1.14) the announcement of the merger. The manipulation of merger
1 Demographics were not included in the survey, and as such cannot be accounted for. 2 Surveytandem.com, surveycircle.com.
3 Growth: N = 71, Survival N = 61, Threat N = 64.
perception was also successful for both the first set (F(1, 133) = 5.94, p = .02) and marginally for the second set (F(1, 133) = 3.22, p = .08) of questions (see below).
Measures
Manipulation check: status and merger perception. Participants’ pre-merger
identification with BOLT was measure with an adapted six-item scale from Mael & Ashforth (1992) (incl. “When someone criticizes BOLT, it feels like a personal insult”, “When someone praises BOLT, it feels like a personal compliment”). Unless indicated otherwise, all items were measured with a 5-point Likert scale (1-disagree to 5-agree), and all measures can be found in the Appendix (α=.90).
To check the success of the merger perception manipulation, participants were asked to answer two sets of items, one adapted from Mottola, Bachman, Gaertner and Dovidio (1997) (incl. “The merger is motivated by BOLT’s wish to survive”, “The merger is motivated by BOLT’s wish to grow”) and the other from Paustian-Underdahl et al. (2017) (incl. “I would feel concerned about losing financial benefits”, “I would expect the merged organization to give me career development opportunities”) This was measured with a 5-point Likert scale (1-disagree to 5-agree).
To check the success of the status manipulation, participants were asked to rate the status of BOLT compared to ACME before the merger announcement (“Which organization has a higher status at the moment?”) and after the merger announcement (“Which organization will have a higher status after the merger?”), adapted from Giessner et al. (2006). This was measure with a 5-point Likert scale (1-ACME, 3-Equal, 5-BOLT).
for after the merger (ACME-BOLT/BOLT-ACME/Neither) and which position they were assigned to (employee/manager/CEO).
Post-Merger Identity. The same items were used to measure pre-merger identity and
post-merger identity (PMI), but were adapted to the post-merger situation (BOLT became BOLT-ACME or ACME-BOLT) (α=.92).
Identity Continuity. This variable was measured with 3 items one from Giessner (2011)
(incl. “In the newly merged organization, the identity of BOLT will still be visible”) and 2 items from (Wermser, Täuber, Essens & Molleman, 2018) (incl. “Due to the merger, outsiders will think differently about BOLT than before”). In the data below, they will be analysed separately and coded as ICI for Giessner’s items (α=.91) and ICII for the others (α=.67). This is because the first set focus more on the abstract concept of identity and the change at the organizational level, while the second relates more closely to the changes individuals experience during the merger. Because the ICII items are negatively worded, they were reversed in the data set.
Perceived Legitimacy. This variable was measured with 2 items from Amiot et al.
(2007) (incl. “I would think that the merger would be equitably implemented”) and 2 items form Giessner et al. (2006) (incl. “I would think the integration efforts would be unfair”). Item 2 and 3, being negatively worded, were reversed in the data set. (α=.86).
Perceived Necessity. This variable was measure with 3-item scale adapted from
Expected Utility. This variable was measured with a 4-item scale from Bartels et al.
(2006) (incl. “I would expect that ore quality can be delivered by BOLT after the merger”, “I would expect cooperation between BOLT and ACME after the merger”) (Cronbach’s α=.79).
Certainty. This variable was measured with a 4-item scale from Giessner (2011), based
on Schweiger and DeNisi (1991) (incl. “During the merger I expect to feel generally uncertain”, “I expect to feel threatened about losing my job”). The scale, being negatively worded, was reversed in the data set (α=.93).
Support for the Merger. This variable was measured with a 4-item scale from Giessner
et al. (2006) (incl. “My willingness to participate in the planner merger is strong”, “I am looking forward to the planned merger”). Item 3, being negatively worded, was reversed in the data set. (α=.79).
Demographics. Participants indicated their age, sex, country of residence, education
RESULTS Manipulation Checks
To check the success of the status and the merger perception manipulation, a 2 (status: high, low) x 2 (merger perception: growth, threat) ANOVA was conducted on the composite measures of status perception and merger perception items. This was revealed to be successful for status (F(1, 441) = 5.85, p = .02, η2 = .01) and for the second set of items for merger
perception (F(1, 441) = 5.91, p = .02, η2 = .01).
Descriptive Analysis
Table 1 displays the means, standard deviations, and correlations between the measured variables. First, merger perception (MP) did not correlate with PMI (r = .00, p = .991), which suggest that the tested model is probably not significant and does not support the assumption that MP is associated with PMI. Next, out of the merger syndrome variables, MP only correlates significantly with perceived necessity (r = -.11, p = .016), and marginally with identity continuity (ICII: r = .08, p = .097). While these results support the assumption that MP is associated with perceived necessity and ICII, they suggest that the more employees perceive a merger as a growth, the less they perceive the merger as necessary and that the more their perceive a continuity in their identity. Surprisingly, MP correlated with the participants’ Current Position (CP: r = .12, p = .015). Since participants were randomly assigned a merger perception, this correlation should not exist. As such, I will use it as control for the next analyses.
their status, the less employees perceive the merger as a necessity. This would mean either that there is no such thing as a merger syndrome or that perceived necessity is not part of it.
A further factor analysis showed that the mediators did not load on the same factors. This would mean that, in this study, the mediators cannot be grouped under the umbrella term of merger syndrome but act separately on the relationship between MP and PMI. As such, I will discuss the results below in relation to their specific hypotheses (i.e. Hypothesis 2c instead of Hypothesis 2).
Another important result is the correlations between PMI and the mediators (p < .000). Supporting prior assumption, the correlation is positive with identity continuity (ICI: r = .54; ICII: r = .22), perceived legitimacy (r = .50), perceived necessity (r = .17), expected utility (r = .52), certainty (r = .32) and support of the merger (r = .56). Additionally, there is also a strong positive correlation between Pre-MI and PMI (r = .63, p < .000). Suggesting that Pre-MI could explain part of PMI’s variance, Pre-MI will be used as covariate in the next analyses.
TABLE 1
Correlations between Variables
Notes. N = 445, † p>.1, * p>.05, ** p>.01, Merger Perception: -1=Threat, 1=Growth; Status: -1=Low, 1=High; Sex: 1=male, 2=female; Education: 1=No schooling completed, 2=some high school, no diploma, 3=High school diploma or equivalent, 4=some college credits, no diploma, 5=Vocational training, 6=Bachelor degree, 7=Master degree, 8=Doctoral degree; Current Position: 1=Intern, 2=Manual worker, 3=Entry level, 4=Lower management, 5=Middle management, 6=Top management, 7=CEO, 8=Owner; Age and Tenure in years.
M (SD) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 1.Merger Perception - - 2.Status - .00 - 3.ICI 9.11 (3.27) -.02 .66** - 4.ICII 6.34 (1.91) .08† .36** .37** - 5.Perceived Legitimacy 12.89 (4.07) .00 .62** .71** .47** -
6.Support of the Merger 13.02 (3.59) .01 .36** .56** .43** .66** -
Hypothesis testing
Hypothesis 1. To test whether growth perceptions have a more positive impact on PMI
compared to threat perceptions (H1), a 2 (merger perception) x 2 (status) ANOVA was run. It included Pre-MI and Current Position as covariate. As expected, both covariates and Status had some effect on PMI (FPre-MI(1, 439) = 313.01, p < .000, η2 = .42; FCurrent Position(1, 439) = 3.23,
p = .07, η2 = .01; F
Status(1, 439) = 68.34, p < .000, η2 = .14). As such, high-status employees
identify significantly more strongly with the merger organization than low-status employees (t(443) = -6.72, p < .000). Likewise, employees with high Pre-MI report significantly stronger PMI values (t(443) = 10.57, p < .000), and employees higher in the hierarchy identify significantly more strongly with the merger organization (t(443) = 2.01, p = .046). However, neither MP nor the interaction effect of MP and Status had any significance (FMP(1, 439) =
0.85, p = .36, η2 = .00; F
Interraction(1, 439) = 0.40, p = .53, η2 = .00). As such, no support for
Hypothesis 1 was found.
Hypothesis 2. To test whether growth perceptions have a more positive impact on the
mediators (i.e. identity continuity, perceived legitimacy, perceived necessity, expected utility, certainty and support of the merger) compared to threat perceptions (H2a-f), a 2 (merger perception) x 2 (status) MANOVA was conducted on the mediators (Identity Continuity (ICI & ICII), Perceived Legitimacy, Perceived Necessity, Expected Utility, Uncertainty, Support of the Merger). It included Current Position as covariate.
Similarly to the correlation results, the effect of MP was only significant with perceived necessity (F(1, 440) = 6.83, p = .01, η2 = .02) and marginally with identity continuity (ICII:
F(1, 440) = 2.73, p = .10, η2 = .01). As hypothesized, when employees perceive mergers as an
as significantly less necessary (t(443) = 2.41, p = .016), while I assumed they would perceive it as more necessary.
As the correlations suggested, Status has more significant effect on the mediators than MP (p < .000) and that effect is negative only for perceived necessity. As such, compared to the low-status group, the high-status group significantly perceives more continuity in their identity during the merger (ICI: t(443) = -18.33 ICII: t(443) = -8.00), perceive the merger as more legitimate (t(443) = -16.43), expect more utility from the merger (t(443) = -3.73), perceive more certainty (t(443) = -8.60) and support the merger more (t(443) = -8.08). On the other hand, high-status group perceive the merger as less necessary (t(443) = 4.56).
Finally, the interaction effect of MP*Status was significant on Perceived Necessity (F(1, 440) = 6.07, p = .01, η2 = .01) and marginally on Perceived Legitimacy (F(1, 440) = 3.01,
p = .08, η2 = .01).
As such, these results support Hypothesis 2a by trend for identity continuity. However, no support was found concerning perceived legitimacy (H2b), expected utility (H2d), certainty (H2e) and support of the merger (H2f). Additionally, these results reject Hypothesis 2c, as merger perception negatively affect perceive necessity.
Exclusion of variables
be no support found for the hypotheses related to expected utility (H3d, H4d), certainty (H3e, H4e) and support of the merger (H3f, H4f). I will also include Pre-Merger Identity, Age, Sex, and Current Position as covariate, since they correlated with either of the selected variables.
Hypothesis Testing with Regression Analyses
Hypothesis 3. To test whether identity continuity, perceived legitimacy and perceived
TABLE 2
Regression Results of the Mediated Model from Merger Perception to Post-Merger Identity, through the Mediators Identity Continuity (ICII), Perceived Legitimacy and
Perceived Necessity.
Mediator models
DV = Identity Continuity (ICII), F(5, 439) = 1.13, p = .344, R2 = 1.27%
TABLE 2 (Cont.)
Direct and Indirect Effects of the Previous Regression DV = Post-Merger Identity
Effect SE LLCI ULCI
Direct effect 0.04 0.03 -0.02 0.10
Total effect 0.03 0.04 -0.04 0.10
IV→IC→DV 0.01 0.01 -0.00 0.02
IV→PL→DV 0.00 0.02 -0.04 0.04
IV→PN→DV -0.01 0.01 -0.03 -0.00
Notes: IV = Merger Perception, DV = Post-Merger Identity, IC = Identity Continuity (ICII), PL = Perceived
Legitimacy, PN = Perceived Necessity, N = 445, † p>.1, * p>.05, ** p>.01, 95% confidence interval, Merger
Perception = {-1 Threat, +1 Growth}.
The mediator model was significant for Perceived Necessity (F(5, 439) = 2.71, p = .020,
R2 = 3.00%) and marginally for Perceived Legitimacy (F(5, 439) = 2.17, p = .057, R2 = 2.41%);
while the dependent variable model was significant (F(8, 436) = 83.97, p < .000, R2 = 60.64%).
The results showed that perceiving the merger as a growth rather than a threat decreased employees’ perceived necessity of the merger (β = -.09, SE = .39, t = -2.39, p = .018) but has no significant effect on identity continuity or perceived legitimacy. Similarly, merger perception had no direct significant effect on PMI (β = .04, SE = .03, t = 1.31, p = .190).
Dependent variable model
As expected, perceiving continuity in their identity increased employees’ identity to the post-merger organization (β = .08, SE = .04, t = 2.30, p = .022). Similar effects were found when employee perceived the merger as legitimate (β = .38, SE = .033, t = 11.53, p < .000), when they perceived the merger as necessary (β = .11, SE = .04, t = 3.31, p = .001), and when they had a strong pre-merger identity (β = .68, SE = .04, t = 19.11, p < .000).
Finally, the relationship between MP and PMI was only mediated significantly by Perceived Necessity (β = -.011, SE = .006, CI = (-.027, -.002)). This means that, by decreasing employees’ perceived necessity of the merger, perceiving merger as a growth rather than a threat indirectly decreased their identity to the post-merger organization.
These results rejects Hypothesis 3c. In contrast to what I hypothesized, perceived necessity negatively mediated the relationship between merger perception and PMI. Moreover, no support was found for Hypotheses 3a and 3b, as no mediation effect was found for identity continuity and perceived legitimacy. It should be noted that MP’s effect is quite small compared to the previous significant effects, suggesting its weakness as a predictor for perceived necessity.
Other interesting results from the regression are that women tend to marginally perceive mergers as a necessity (β = .13, SE = .08, t = 1.70, p = .089), while older employees tend to marginally perceive mergers as legitimate (β = .01, SE = .01, t = 1.77, p = .077).
Hypothesis 4. To test whether pre-merger status moderates the relation between merger
TABLE 3
Regression Results of the Moderated Mediation Model from Merger Perception to Post-Merger Identity, through the Mediators Identity Continuity (ICII), Perceived
Legitimacy and Perceived Necessity, Moderated by Status.
Mediator models
DV = Identity Continuity (ICII), F(7, 437) = 10.30, p > .000, R2 = 14.16%
TABLE 3 (Cont.)
Dependent variable model
DV = Post-Merger Identity, F(8, 436)= 83.97, p > .000, R2 = 60.64% Predictor β SE t Constant -1.31 .25 -5.33** Merger Perception 0.04 0.03 1.31 Identity Continuity 0.08 0.04 2.30* Perceived Legitimacy 0.38 0.03 11.53** Perceived Necessity 0.12 0.04 3.31** Pre-Merger Identity 0.69 0.04 19.11** Age 0.00 0.00 0.03 Sex 0.02 0.06 0.32 Position 0.03 0.03 0.90
Direct and Indirect Effects
DV = Post-Merger Identity
Status Effect SE LLCI ULCI
Direct effect 0.04 0.03 -0.02 0.10 IV→IC→DV -1 0.01 0.01 -0.00 0.02 +1 0.00 0.01 -0.00 0.02 Moderated Mediation -0.00 0.01 -0.02 0.01 IV→PL→DV -1 0.02 0.02 -0.02 0.07 +1 -0.03 0.02 -0.6 0.01 Moderated Mediation -0.05 0.03 -0.11 0.01 IV→PN→DV -1 -0.00 0.01 -0.02 0.01 +1 -0.02 0.01 -0.04 -0.01 Moderated Mediation -0.02 -0.01 -0.05 -0.01
Notes: IV = Merger Perception, DV = Post-Merger Identity, IC = Identity Continuity (ICII), PL = Perceived
Legitimacy, PN = Perceived Necessity, N = 445, † p>.1, * p>.05, ** p>.01, 95% confidence interval. Merger
The mediator model was significant for every tested mediators (FICII(7, 437) = 10.30, p
< .000, R2 = 14.16%; F
PL(7, 437) = 40.89, p < .000, R2 = 39.57%; FPN(5, 439) = 2.71, p = .020,
R2 = 3.00%). Similar to the ANOVA analysis, the results showed (p < .000) that status
increased employees’ perceived continuity of their identity through the merger (β = .34, SE = .04, t = 8.09), increased their perceived legitimacy of the merger (β = .62, SE = .04, t = 16.29) and decreased their perceived necessity of the merger (β = -.19, SE = .04, t = -4.91). Additionally, the interactive effect between MP and Status is significant with Perceived Necessity (β = -.09, SE = .04, t = -2.45, p = .015) and marginally with Perceived Legitimacy (β = -.07, SE = .04, t = -1.76, p = .079). Similar to the previous analysis, MP’s effects on the variables (including the interactive effect with Status) are quite small compared the effects from Status. This suggest that MP is a weaker predictor for perceived necessity and perceived legitimacy compared to status.
Finally, the overall moderation mediation is only significant in relation to Perceived Necessity (β = -.022, SE = .011, CI = (-.050, -.005)). However, while the confidence interval is of the same sign in the high status group (β = -.022, SE = .009, CI = (-.044, -.008)) but is of different signs in the low status one (β = -.000, SE = .007, CI = (-.016, .014)).
As such, no support was found for Hypothesis 4a-c. In contrast to what I hypothesized, no difference in effect between low and high status groups was found for identity continuity, perceived legitimacy or perceived necessity.
Other interesting results from the regression are that older employees and women marginally perceived mergers as necessary to a stronger degree (respectively β = .01, SE = .00,
t = 1.68, p = .093; β = .14, SE = .08, t = 1.81, p = .071), and employees higher in the hierarchy
DISCUSSION Hypotheses and findings
This study examined the effect of merger perception as a dichotomous threat vs. opportunity on post-merger identity. The results did not support Hypothesis 1, where growth perceptions would have a more positive impact on PMI compared to threat perceptions.
Second, this study investigated the effect of merger perception on identity continuity, perceived legitimacy, perceived necessity, expected utility, certainty and support of the merger. The results supported Hypothesis 2a, as growth perceptions had a more positive impact on identity continuity compared to threat perceptions, and rejected Hypothesis 2c, as growth perceptions had a more negative impact on perceived necessity compared to threat perception. However, there was no effect of merger perception on perceived legitimacy, expected utility, certainty and support of the merger.
Third, this study reviewed whether the previous variables mediated the effect of merger perception on PMI. The results rejected Hypothesis 3c, as perceived necessity negatively mediated the relationship between merger perception and PMI. Identity continuity, perceived legitimacy, expected utility, certainty and support of the merger did not mediate this relationship. However, perceived necessity, identity continuity and perceived legitimacy had a positive impact on PMI, in line with many previous studies (i.a. Giessner, 2011; van Leeuwen et al., 2003; Boen, et al., 2010; Gliebs et al, 2008; Sacchi, et al., 2013; Edwards & Edwards, 2012; Giessner et al., 2006; Lipponen et al., 2004; Tyler & De Cremer, 2005).
and PMI in the high status. As previously noted, the significant effects of merger perception on the other variables, including the interactive effect with status, were quite small compared to the other significant effects. This would suggest that merger perception is a weak predictor for the aforementioned variables. On the other hand, status is quite a strong predictors for the mediators, suggesting having more power over the model than merger perception.
Besides my proposed hypotheses, I obtained extra interesting results from the different analyses. I found a positive relationship between pre-merger identity and PMI, which is in line many studies (i.a. Bartels et al, 2006; Jetten, et al., 2002; van Leeuwen, et al., 2003).
Along with having a stronger effect on variables compared to merger perception, Status’s effect on the variables is conform to previous studies. In the high-status group, individuals feel more identity continuity (van Knippenberg, et al., 2002), perceive the merger as more legitimate (Amiot, et al., 2007), support the merger more (Giessner et al., 20065) and have stronger PMI (Terry et al., 2001). New results have shown that in the high-status group, individuals expect stronger utility for the merger, perceive the merger as less necessarily and feel less uncertainty.
The final interesting result was the correlation between merger perception and the participants’ current position, which should not have appeared as participant were randomly assigned to a condition. One could hypothesize that people higher up the hierarchy could see organizational changes more as an opportunity than people lower in the hierarchy.
Theoretical implications
As previously mentioned, few studies have been conducted on positive perceptions of mergers and their effect on the success of the merger (Paustian-Underdahl et al., 2017). Not only this study adds a more nuanced perspective on the concept of merger perception, it also
extends the predominantly existing qualitative research with quantitative research. Even if most of the findings were not significant, I studied a new moderated mediation model yet to be published in journals, as research focused on the pre-deal side of mergers (Teerikangas, 2012) or did not use a mediation between the merger perception and merger success indicators (Paustian-Underdahl et al., 2017).
This study has shown that growth perceptions have a negative indirect effect on employees’ PMI through their perceived necessity. This could mean that individuals perceiving the merger as growth feel less necessity towards the merger, as their organization would not seem worse off without the merger. This result could imply that either growth perceptions have a negative effect on the whole merger syndrome or that, by having different effects on these variables, one cannot talk of a merger syndrome in this merger perception context.
Practical implications
Managers should take into account that, when framing a merger to employees, how employees perceive the merger in terms of necessity, legitimacy, uncertainty or expected utility will affect their identification to the merged organizations, and in turn the success of the merger. This study showed that framing a merger as an opportunity would decrease the success of the merger as it would lessen the employees’ perceived necessity of the merger. As such, managers should consider balancing this effect by emphasizing on other aspects having stronger effects on PMI, such as legitimacy.
The positive correlation between merger perception and the participant’s current position in their organization could imply that individuals higher up the hierarchy could see changes more as an opportunity than people lower in the hierarchy. This could be related to the need for strategic understanding and business expertise in middle-top management position, who understand the added value mergers can bring to their organization, compared to lower positions.
Limitations and Future Research
While it is important to understand how and why mergers fail, it is as important to understand how merger succeeds. Even if this study has not shown much of the effect of merger perception, is has shown that such effect exists. Future research should provide a greater focus on the concept of merger perception, especially as this opportunity vs. threat paradigm.
As I could not reach any conclusion on most hypotheses due to low significance, one should look into the contingencies of the results and limitations of this study, which could have influenced or explained these results. One could blame the lack of results on the sample size, which amounted to about 100 participants per condition. One might find more results with larger samples for each condition.
As this study showed that only perceived necessity was directly affected by merger perception and that other merger syndrome variables affected PMI, future research could consider a more complicated model with some interactive effect between mediators explaining more of PMI’s variance. For example, perceiving a continuity in identity could affect employees’ perception of legitimacy and necessity of the merger6, which would in turn affect their identification to the merged organization. Moreover, some of these variables could have a moderating effect rather than mediating. Previous research already showed an effect between perceived necessity and uncertainty, moderated by identity continuity (Giessner, 2011).
Similarly, status could have a more extended effect in the model. Here, I argued that status had an effect on the relationship between merger perception and the mediators. Previous studies have successfully shown the effect of status on PMI (Boen, Vanbeselaere, & Millet, 2005c). As such, status could also be moderating the relationship between merger perception and PMI. Another path would be to consider Status having an effect on merger perception. One could hypothesize that employees in high-status organizations could perceive mergers more as an opportunity than a threat, as they could have less to lose compared to low-status employees. The mitigated effects from merger perception could be due to the negative connotation of ‘merger’, which by its mention could have brought negative feelings to the participants and skewed the manipulation. Previous bad experiences with mergers could have made participants sceptical toward the fake merger. Future research could control for this by asking whether participants experienced a merger and if so whether their experiences were positive or negative. While this study in this setting did not produce many significant results, future research could consider testing this conceptual model in a workplace environment, as few research focus on field settings. Similarly, this model could be replicated in a lab by merging manipulated groups and include the possibility of merger perception and status manipulation.
CONCLUSION
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APPENDIXES
Appendix 1: Experiment Manipulation
Hereinafter, the status manipulation is differentiated as follow: {High Status/Low Status}. General Text.
Imagine you are a manager at the BOLT Bank.
You have been with the company for the past 10 years. During this time, you have enjoyed working at this company and you have profited from the professional and personal development it accompanied. You feel satisfied with your current position as manager, and you have a good relationship with most of your colleagues.
Organization Characteristics.
Please compare the following information about BOLT Bank and ACME Banking Corporation carefully and answer the question below.
{BOLT Bank/ACME Banking Corporation} {ACME Banking Corporation/BOLT Bank}
Founded in 1919. Financially successful. Worldwide focus.
Current share price: $40.88 (NYSE) Size: Approx. 170.000 employees Branches: Approx. 1.100
Founded in 1990. Financially profitable. Domestic focus.
Current share price: $12.21 (NYSE) Size: Approx. 170.000 employees Branches: Approx. 1.100
Merger Characteristics.
Growth Email.
Dear BOLT Bank employees,
Today we want to inform you about the merger between BOLT Bank and the innovative organization ACME Banking Corporation to create the {BOLT-ACME/ACME-BOLT} Corporation. This step will allow us to learn each other’s best practices and grow stronger in the market. Combining our assets has the potential to unlock enormous and innovative opportunities.
You will experience many changes in the coming months to accommodate the merger. We have set our companies’ path in this prosperous direction and we appreciate the continued cooperation from all of our employees as we work through this transition period. We hope you will help us make this merger successful and create something great!
Yours Always, / John Miller / CEO of BOLT Banking
Threat Email.
Dear BOLT Bank employees,
Today we want to inform you about the merger between BOLT Bank and our former competitor ACME Banking Corporation to create the {BOLT-ACME/ACME-BOLT}
Characteristics of the merged organization Name: {BOLT-ACME/ACME-BOLT}
Logo:
Control of operations: headquarters of {BOLT/ACME}, smaller extent by {ACME/BOLT} Top management team: from both organizations with a majority from {BOLT/ACME}
Corporation. This step will allow us to cut unnecessary costs and grant us a larger market share. It is more important than ever to stay competitive in this market.
You will experience many changes in the coming months to accommodate the merger. We have set our companies’ path in this challenging direction and we appreciate the continued cooperation from all of our employees as we work through this transition period. We hope you will help us make this merger materialize.
Yours Always, / John Miller / CEO of BOLT Banking
Appendix 2: Survey Questions
Pre-Merger Identification.
To what extent do you agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PreMI1.When someone criticizes BOLT, it feels like a personal insult. PreMI2.I am very interested in what others think about BOLT.
PreMI3.When I talk about BOLT, I usually say ‘we’ rather than ‘they’. PreMI4.BOLT’s successes are my successes.
PreMI5.When someone praises BOLT it feels like a personal compliment. PreMI6.If a story in the media criticized BOLT. I would feel embarrassed.
Post-Merger Identification.
Based on the announced merger, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PMI1.When someone criticizes {BOLT-ACME/ACME-BOLT}, it feels like a personal insult. PMI2.I am very interested in what others think about {BOLT-ACME/ACME-BOLT}.
PMI3.When I talk about {BOLT-ACME/ACME-BOLT}, I usually say ‘we’ rather than ‘they’. PMI4.{BOLT-ACME/ACME-BOLT}’s successes are my successes.
PMI5.When someone praises {BOLT-ACME/ACME-BOLT} it feels like a personal compliment.
Identity Continuity.
Based on the announced merger, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
Identity Continuity (ICI)
IC1.In the newly merged organization, the identity of BOLT will still be visible.
IC2.The newly merged organization will be very similar to the organization I worked before the merger
IC3.The newly merged organization will be very representative for BOLT. Identity Continuity (ICII)
IC4.The way in which former BOLT employees will interact will change due to the merger. (Negatively worded)
IC5.Due to the merger, outsiders will think differently about BOLT than before. (Negatively worded)
Perceived Legitimacy.
Based on the announced merger, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PL1.I would think that the merger would be equitably implemented.
PL2.I would think that BOLT would be disadvantaged in the merger. (Negatively worded) PL3.I would think that the integration efforts would be unfair. (Negatively worded)
PL4.I would expect that the manner of the integration of ACME and BOLT can be perceived as fair under the given circumstances.
Perceived Necessity.
Based on the announcement made by BOLTs CEO, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PN3.I would think that, even without the merger, my former organization would have been perfectly able to go on alone. (Negatively worded)
Expected Utility.
Based on the announcement made by BOLTs CEO, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
EU1.I would expect that more quality can be delivered by BOLT after the merger.
EU2.I would expect that more efficient work can be done by BOLT thanks to the merger. EU3.I would expect the newly merged organization to be more professional than BOLT. EU4.I would expect cooperation between BOLT and ACME after the merger.
Uncertainty.
Based on the announced merger, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
U1.During the merger, I expect to feel generally uncertain.
U2.During the merger, I expect to feel threatened about losing my job.
U3.During the merger, I expect to feel uncertain about my fit in the newly merged organization. U4.During the merger, I expect NOT to feel safe with regards to my future career.
Support of the Merger.
Based on the announced merger, to what extent would you expect to agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
SM1.My willingness to participate in the planned merger is strong. SM2.I think that the integration of ACME and BOLT will be successful.
SM3.I expect resistance from the employees of my company toward the planned merger. (Negatively worded)
Merger Perception Check.
Based on your understanding of the email sent to you by BOLT’s CEO, to what extent would you agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PC11.The merger is motivated by BOLT’s wish to survive. PC12.The merger is motivated by BOLT’s wish to grow.
PC13.The merger is motivated by BOLT’s wish to manage a threatening business.
PC14.The merger is motivated by BOLT’s wish to make use of an opportunity in the business environment.
Based on your understanding of the email sent to you by BOLT’s CEO, to what extent would you agree with the following statements? (1=Disagree, 2=Somewhat Disagree, 3=Neither Agree nor Disagree, 4=Somewhat Agree, 5=Agree)
PC21.I would feel concerned about losing financial benefits.
PC22.I would feel concerned about losing job status and authority because of the merger. PC23.I would expect to be demoted as a result of the merger.
PC24.I would expect the merged organization to give me career development opportunities. (Negatively worded)
