The importance of organizational values in the creation of
synergies during mergers and acquisitions:
The effect of organizational value differences on synergy realization and the
mediating role of socio-cultural integration.
Master Thesis, MSc Human Resource Management University of Groningen, Faculty of Economics and Business
June 9,2020
Hilbert-Jan Mattheüs Jansen Student number: S2942399 Hoendiep 65 9718 TD Groningen Tel: +31 (0)6-44888082 E-mail: h.j.m.jansen@student.rug.nl Supervisor:
PhD Bart Verwaeren, University of Groningen
Abstract
Organizational differences within mergers and acquisitions (M&As) is an expanding field of research since it can have profound effects on M&A outcomes. Until now, most research has not dissected the differences between companies further than national and organizational culture differences. However, organizational culture differences is still a broad concept, including a lot of different facets. The current study focuses on organizational value
differences as one of the facets of organizational culture differences to shed more light on the divergent effects of the different parts of organizational culture. Furthermore, I investigate if socio-cultural integration forms an underlying factor within the relation between
organizational values and synergy realization. Using a sample of 103 M&As, including information of various databases, the theoretical predictions have been tested using several linear regression models and a moderation model (PROCESS model 4). The results show that indeed organizational culture is a more complex concept than currently used, even
organizational values as one concept is unable to give voice to the divergent effects of its counterparts.
Introduction
The acquisition of Autonomy by Hewlett Packard (HP) for over eleven-billion US dollars in 2011, resulted in a disaster (Worthen & Scheck, 2013). HP directly recorded an eighteen-billion dollar impairment in 2012 (Hopkins & Yemen, 2018) and sold the Autonomy assessed in 2016 with a nine-billion dollar loss. This example illustrates that the alluring benefits of mergers and acquisitions (M&As) are often not realized. The growth, achieving corporate diversity (Nahavandi & Malekzadeh, 1988), entering new geographic markets and obtaining novel technologies that M&As have to offer (Graebner, Heimeriks, Huy, & Vaara, 2017), do often not result in in overall business benefits. Stunning failure rates: of up to 83% of all mergers are unsuccessful (KPMG, 1999) and roughly half of the mergers are reversed within a decade (O'Mahony, 2019). These failure rates are often due to the profound need for organizational changes that accompany M&As. These changes can result in great
acculturative stress among employees (Nahavandi & Malekzadeh, 1988) and are therefore especially interesting for the field of organizational behavior. Managers are often not fully aware of the changes or fail to employ the right tools to tackle the problems these changes bring with them (Shirkin, Keenan, Jackson, 2005). Differences in organizational culture can be one of these problems, as was the case within the Autonomy acquisition (Stanwick & Stanwick, 2014), and can have profound effects on M&A outcomes (Stahl & Voigt, 2008). These cultural differences encompass the differences in values, practices and basic
Although, many scholars have addressed the relation between cultural differences and M&A outcomes, the results remain fragmented (Teerikangas & Very, 2006). At the basis of many papers in this topic lies the cultural difference theory (Hofstede, 1980), which suggests that cross-cultural difficulties become larger when the cultural distance between individuals, groups or organizations increases. Concerning M&As alone, this theory received mixed support, with some studies in favor of the hypothesis (Datta & Puia, 1995), some inconclusive (Very, Lubatkin, Calori, & Veiga, 1997) and even some that found reversed effects (Morosini, Shane, & Singh, 1998). These mixed findings indicate that there may be more to cultural differences and the M&A outcomes relation than the proposed cultural differences theory.
One explanation may be found in the different dimensions of which culture consists and how these dimensions affect M&A outcomes in divergent ways (Weber, Shenka, & Radev, 1996). For example, the differences of the effects of national cultural and
organizational cultural differences on M&A outcomes has been well established (Pothukuchi, Damanpour, Choi, Chen, & Park, 2002; Björkman, Stahl, & Vaara, 2007; Stahl & Voight 2008; Vaara, Sarala, Stahl, & Björkman, 2010). However, which facets of the broadly used organizational culture concept influence M&A outcomes, remains unclear.
Notwithstanding, this gap is not the only gap in the cultural differences and M&A outcomes relation. The mixed findings in this topic, as showed earlier, may point toward underlying factors in this relationship. Scholars point toward the growing need to identify how these underlying factors affect the cultural differences and M&A outcomes relation (Björkman, et al., 2007; Vara et al., 2010), especially related to socio-cultural integration (Shrivasta, 1986; Stahl & Voigt, 2005). Since this concept remains under-represented in research (Björkman et al., 2007). Therefore, this paper tries to identify the impact that
outcomes and will try to clarify this relation by the underlying process of socio-cultural integration.
To address these gaps in research, this paper first focusses on the effect of
organizational value differences on M&A outcomes. Schein (1990) proposed in his seminal organizational culture model, that within an organization, values are the underlying
mechanism of practices. Therefore, most research does not distinct between organizational practices and values, but rather uses organizational culture as an overarching mechanism. There might however be a striking difference between “what should be” (i.e. values) and “what is” (i.e. practices) as also found by the established Global Leadership and
Organizational Behavior Effectiveness (GLOBE) studies (House, Hanges, Javidan, Dorfman, & Gupta, 2004), which focus on leadership as well as culture (House, Javidan, Hanges, & Dorfman, 2002). The current paper merely focuses on the effect of organizational values, since organizational values are the strongest determinant for organizational culture (Seevers, 2000). Therefore, organizational value differences are likely to provide the biggest insight in the effect that different facets of organizational culture have on synergy realization.
the companies differ, which as a consequence may increase the number of conflicts. When socio-cultural integration between two companies is realized and trust and a shared identity are established, members of both organizations are more likely to work together and share their individual knowledge. In this way, individual knowledge can become organizational knowledge (Grotenhuis & Weggeman, 2002). By creating an environment in which workers and teams can learn from each other and can tap into each other’s knowledge, firms can enhance their synergy realization. This synergy realization is a combination of firms’
knowledge and resources that creates more value than either of these firms could accomplish alone and is often indicated by sales growth or the return on assets (Stahl & Voight, 2008). The reasoning above, leads to the following research model (Figure 1) and question: To what
extent do organizational value differences effect synergy realization and can this effect be
mediated by socio-cultural integration?
Theoretical background and hypotheses
The current study focuses on how organizational value differences, effect M&A outcomes. To conceptualize the rather broad concept of M&A outcomes, which can be based on several different variables (Pablo & Javidan, 2004), I focus on synergy realization. As indicated before, synergy realization can be seen as a function of the similarity and complementarity of the two merging businesses (Larsson & Finkelstein, 1999). Therefore, synergy realization is the potential of combinations between the firms involved in the M&A. Synergy realization will be focused on accounting-based performance, more precisely the return on assets. Previous research has indicated this approach as appropriate to measure synergy realization (Weber 1996; Stahl & Voight, 2008). Moreover, it is important to exclude the realized
intangible benefits, such as access to new markets, talents or culture in synergy realization. By differentiating between these intangible benefits and the accounting-based performance, the difference in what theoretically could add value and what actually did add value can be made (Ficery, Herd, & Pursche, 2007). This does not mean that these intangible benefits cannot be on the bases of enhanced accounting-based performance. However, the difference still emphasizes the actual realization of synergies.
The effect of differences in organizational values
meta-analysis, Stahl & Voight (2008) point toward the obstacles that differences in organizational cultures between companies bring with them. However, they found that organizational cultural differences are unrelated to accounting-based performance. This may be found due to the fact that organizational culture was used as a broad overarching concept.
Whereas organizational culture is seen as a layered concept in the well-established model by Schein (1990), new research suggested that the concepts proposed by Schein might not be totally layered after al (House et al., 2004). Schein (1990) proposes that culture consist of artifacts, values and underlying assumptions. These underlying assumptions can be defined as unconscious, taken for granted beliefs, habits of perception, thoughts and feelings. The underlying assumptions give rise to organizational values, which consist of ideals, norms, espoused goals and moral principles. In turn, Schein (1990) proposes that these values give rise to artifacts, which are the highest level the organizational culture model. These artifacts can be seen as practices (Stahl & Voight, 2008) and embody the things one observes, feels and notice when entering a new culture (Schein, 1990). However, research based on GLOBE, showed that practices and values are, more often than not, negatively correlated (House et al., 2004). This indicates that practices may not be derived from values after all. Therefore, it is important to break through the overarching concept of organizational culture and look at the different facets of which organizational culture consist.
I propose that especially differences in organizational values may have serious consequences for synergy realization, since organizational values are the basis for strategic decisions about the current and future direction of the organization (Seevers, 2000).
organization will be dissatisfied with the vocal values. Therefore, when organizational values differences are large, companies are unable to employ all unique information within the company’s strategic decision-making process. This means that the affected decision-making process is less likely to result in the optimum realization of synergies.
Furthermore, when values differ between companies or groups within companies, it becomes harder to interact effectively and to understand and react to problems that arise (Cannon-Bowers, Salas, & Converse, 1993). Different values may also result in sub-groups. For example, different views about occupational roles or organizational change might divide groups. When sub-groups arise and become stronger over time, conflict becomes more prevalent and serious (Lau & Murninghan, 1998). When the values between companies are similar and the mentioned obstacles do not arise or arise less pervasive, the M&A will be a smoother process, which will contribute to synergy realization.
Moreover, differences in values can, in the worst scenario, even lead to sabotage on the work floor. When two firms have incompatible values, at least one of the companies must adapt their values to work in a joint manner. However, people are in nature resistant to change in their working environment (Burnes, 2015). Therefore, people are resilient to the adaptation of new values. When ways or ideas about working are imposed on people, in order to work together, people might try to sabotage these new ways of working (Lozeau, Langley, & Denis, 2002). This form of sabotage is often a manner to show that the new ways or ideas do not work as good as the former.
result in breakthroughs in rigid practices (Vermeulen & Barkema, 2001). These benefits can however only be realized when the differences between the two firms are not too great (Björkman et al., 2007). Thus, it is important to attain at least a fair amount of value congruence between companies involved in a M&A. The reasoning above leads to the following hypothesis.
Hypothesis 1: Organizational value differences are negatively associated with synergy
realization.
The mediating effect of socio-cultural integration.
The expectation is that the relation between organizational value differences and synergy realization in M&As is at least partly mediated by socio-cultural integration. Socio-cultural integration comprises interpersonal relations, trust and a shared identity (Hajro, 2015) and relates to the interaction between people and the culture in which they interact. Socio-cultural integration is important within the M&A research for two reasons (Koka & Prescot, 2002). First, it gives insight in the total set of social relations that is established between the firms involved in the M&A. Secondly, it indicates to which extent information and resources flow between the firms involved.
I propose that differences in organizational values between companies are the biggest challenge in achieving socio-cultural integration. People are by nature attracted to others whose values are similar to their own (Lewicki & Bunker, 1995). Furthermore, shared norms and ideologies result in greater trust and less potential for conflict. If people of different organizations do not share the same values, the potential for sub-groups increases. This potential becomes even bigger in threatening situations (Lau & Murninghan, 1998), such as a M&A. When sub-groups are established, the social identity theory (Tajfel, 1981; Turner, 1982) suggests that members of an organization tend to show a bias toward their own group and hold a negative view toward members of the outgroup to enhance their own relative standing. In this situation, cohesiveness among members of different sub-groups decreases and conflict becomes more prevalent and serious (Lau & Murninghan, 1998) and therefore decreases the potential of socio-cultural integration. However, if the values of the different organizations are similar, there will be less emphasis on the formation of sub-groups and organizational members are more likely to identify themselves with the new organization at large (Lau & Murninghan, 1998).
Yet, when people have to work with new organizational members, which is often the case in M&As, trust among employees is low and people are more likely to sabotage each other than join forces and work together (Shimoni, 2017). This effect becomes more prevalent when values and working manners are further apart. To the contrary, differences rather than similarities create the opportunity to tap into new knowledge (Vermeulen & Barkema, 2001). When organizational members recognize the unique opportunity to tap into the new
even though socio-cultural integration may be hard to realize during a M&A, the benefits of a successful integration process are alluring.
Hypothesis 2: Organizational value differences are negatively associated with
socio-cultural integration.
If organizations are successful in establishing socio-cultural integration, this integration progress can have a profound influence on the synergy realization. When trust is established and people have interpersonal relations with their new co-workers, they are more likely to communicate (Abrams, Wetherell, Cochrane, Hogg, & Turner, 1990). They also influence each other more and are more willing to listen to the ideas of the people they trust. This will make capability transfers and resource sharing easier (Brikinshaw et al., 2000) and therefore increases the synergy potential (Larsson & Finkelstein, 1999). When interpersonal relations are not established, employees may be isolated (Lau & Murnighan, 1998), therefore
withholding people to transfer their capabilities, sharing their resources, and learn from each other. Thus, harming the potential to realize synergies. The reasoning above leads to the following hypotheses:
Hypothesis 3: Socio-cultural integration is positively associated with synergy
realization.
Hypothesis 4: Socio-cultural integration can at least partly mediate the effect between
1At the starting point of the data collection, I tried to collect the ESG information of Tomas Reuters Eikon to operationalize this information into organizational
practices. This would have enabled me to explore the different effects of organizational value and practice differences. The ESG database of EIKON only consist of companies that are or were listed at one of the major stock exchanges. However, due to the corona crisis, the RUG computers at the Zernike containing the EIKON databases, could not be accessed. Since this information was supposed to be available via a wireless connection, I still only focused on the companies that were listed on major stock exchanges. In the end I was not able to properly access all the needed information wirelessly. At this time, most of the data was already collected, therefore only the companies that could have been available in EIKON were included in the sample.
Methods
Data sample and research designTo test the hypotheses, I assembled a dataset for which multiple sources were used. The used method is partly derived from the method used by Larsson & Finkelstein (1999), who
collected data by assessing various sources of written information about M&As. However, technical improvements over the last decades made it possible to collect the data in a quicker and less time-consuming manner. First, the Zephyr database was used in order to gather information about which M&As took place. Based on the availability of data in other databases, other required information about the M&As was gathered. I only used M&As in the research sample when the ‘about us’-section or mission statement, a public release to assess socio-cultural integration and the return on assets (ROA) in the ORBIS database for two years after the M&A were accessible. To minimize the effect of national cultural
differences, which also play a role in cultural differences (Pothukuchi et al., 2002; Björkman et al., 2007; Stahl & Voight 2008; Vaara et al, 2010), I only included M&As within the same national cultural clusters as proposed within the GLOBE research (House et al., 2004).
In the first step, all M&As that took place between 2003 and 2018 with a deal value of
more than six and half billion euro in the Zephyr database were assessed. This search resulted in 414 M&A deals. The deals involving governments and semi governments, were not used for this study. Additionally, only the deals in which both companies were listed on a major
stock exchange before the M&A, were included in this study1. At this point 131 deals were
and ‘about us’-sections (4 times) and no available mission statement or ‘about us’-section on the old website (2 times). Of four deals a sufficient press release or other public release could not be found, and one deal did not make the sample since it was reversed after government interventions. Moreover, of eleven deals the ROA of the two years after the deal took place, could not be retrieved. This was due to data that was not available in the used databases because the company was acquired by another company itself (3 times), failed in the years after the M&A (2 times), did not release their ROA information for 2019 yet (2 times) or were not available for other reasons (4 times). Therefore, the final sample consist of 103 M&As, involving 206 companies.
Measures
Synergy realization. As aforementioned, synergy realization is focused on accounting-based
performances, more precisely on the ROA. Previous research has indicated this approach as appropriate to measure synergy realization (Weber 1996; Stahl & Voight, 2008) and to be highly correlated with other measurements of profitability (Weill, 1992). To access this information, I used the ORBIS databases, which contains financial information, including the ROA in recent years. In the few cases the needed information was not found in ORBIS, I used the Macrotrends database, which is focused on stock research and market indexes and
contains ROA information of stock listed companies. Because the ROA varies across different industries and varies between the size of companies (Weber 1996), I calculated the growth or decline in ROA. In line with Weber (1996) the rate of increase (or decrease) in ROA is calculated by the ROA in the years after the M&A took place. This is done by subtracting the ROA of the first year after the M&A of the ROA of the second year after the M&A and divided by the ROA of the first year after the M&A (formula 1).
𝑆𝑦𝑛𝑒𝑟𝑔𝑦 𝑟𝑒𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =𝑅𝑂𝐴 𝑎𝑓𝑡𝑒𝑟 𝑡𝑤𝑜 𝑦𝑒𝑎𝑟𝑠 − 𝑅𝑂𝐴 𝑎𝑓𝑡𝑒𝑟 𝑜𝑛𝑒 𝑦𝑒𝑎𝑟
𝑅𝑂𝐴 𝑎𝑓𝑡𝑒𝑟 𝑜𝑛𝑒 𝑦𝑒𝑎𝑟
Organizational value differences. To assess the value differences between organizations, it
is important to measure the differences between pre-merging firms. To evaluate this information, I made use of the ‘about us’-section of these companies on the ‘Internet
Archive’. The Internet Archive contains old versions of websites and therefore enabled me to
retrieve ‘about sections of the pre-merger firms one year before the M&A. ‘About us’-sections of organizational websites, and the similar mission statements (David, 1989), are useful to capture the idiosyncratic beliefs and values of an organization (Livengood & Reger, 2010; Zachary, McKenny, Short, Davis, & Wu, 2011). This method is derived from the Sapir-Whorf hypothesis, which states that people reflect their values through the words they use (Sapir, 1921; Whorf, 1940). The ‘about us’-section and mission statements include long-term statements that distinguish one organization from another (David, 1989). Previous research also indicated that these sections are not intended for legitimating purposes (Morphew & Hartley, 2006) and therefore can be used to derive company values.
To assess the ‘about us’-sections or mission statements, I used Computer-aided text analysis (CATA). CATA is a tool that is commonly used in the field of organizational
behavior, most often in the field of marketing research (Zachary et al., 2011). CATA captures theoretical based constructs by counting words in text (Short, Broberg, Cogliser, & Brigham, 2010) and codes more reliable and faster than humans can (Neuendorf, 2002). For this paper, the Linguistic Inquiry and Word Count (LIWC) 2015 program was used to conduct the CATA.
This method requires a dictionary containing the words that need to be counted. To conduct this dictionary (Appendix A), I used several existing wordlists accessible in online databases, the LIWC program and other research papers. Firstly, Kabanoff, Waldersee and Cohen (1995) developed a dictionary for organizational values to define four ideal
the new dictionary. Since the dictionary made by Kabanoff et al. (1995) focuses on structures and processes only, it was not fully applicable in this study. Still five (authority, achievement, cooperation, reward & affiliation) of the eight used distinct values in this study are based on at least one of nine distinct values used by Kabanoff et al. (1995).
Secondly, to finalize the new dictionary, I draw upon the dictionary created by Short et al. (2010), who developed a dictionary in their development for a procedure to enhance construct validity when using CATA. The dictionary by Short et al. (2010) is designed to measure entrepreneurial orientation, which illustrates the collective mindset and captures the values, beliefs and norms of an organization (Fayolle, Basso, & Bouchard, 2010) and is therefore adjacent to organizational values. In this paper the innovativeness and risk-taking dimensions of the Short et al. (2010) dictionary are used to capture innovativeness and risk-taking value sets within companies.
After combining all the existing wordlists accessible in online databases, the LIWC program or other research papers, the total dictionary was checked for reliability of coding. To finalize the dictionary, all the words that could appear in an ambiguous context, were deleted form the dictionary. For example, the word “like”, which was part of the affiliation list, could appear in a context in which one person indicates to “like” another person or in which an example was given such as: “like our diversity program”.
In line with previous research that has indicated that the frequency of specific words used in organizational documents can be used to capture conceptual categories (Cho & Hambrick, 2006), I assume that the frequency in which specific words are used in ‘about us’-sections or mission statements, can capture the organizational values within a company. LIWC calculates the percentage of words used in one of the second order categories and for values overall in relation to the total words used in the ‘about us’-section or mission statement as final score in this category. This is done to control for the length of an examined text and to control for the overall emphasis on values within a text (Baur, Parker Ellen, Buckley, Ferris, Allison, Mckenny, & Short, 2016). Finally, I will calculate the differences between the
companies involved in the M&A using formal 2. All the final scores will be of positive nature since it does not matter which company places more emphasis on one value in this research. Rather, it is the differences between the two companies that matters.
𝑂𝑟𝑔𝑎𝑛𝑖𝑧𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑑𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑠
= 𝐿𝐼𝑊𝐶 𝑣𝑎𝑙𝑢𝑒 𝑠𝑐𝑜𝑟𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 1 − 𝐿𝐼𝑊𝐶 𝑣𝑎𝑙𝑢𝑒 𝑠𝑐𝑜𝑟𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 2
(𝐿𝐼𝑊𝐶 𝑣𝑎𝑙𝑢𝑒 𝑠𝑐𝑜𝑟𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 1 + 𝐿𝐼𝑊𝐶 𝑣𝑎𝑙𝑢𝑒 𝑠𝑐𝑜𝑟𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 2)/2
Formula 2: Calculation of organizational value differences.
Socio-cultural integration. To indicate to what extent two companies involved in a M&A are
transcripts of interviews about the M&A that give an insight in the established interpersonal relations, trust and shared mindset among the companies employees. These public releases can be used, because the words people use can give important insights to their social and psychological worlds (Pennebaker, Mehl, & Niederhoffer, 2003). Especially press releases create a valuable source of information because they are a good manner of disclosing information for companies (Davis & Tama-Sweet, 2012). Consequently, press releases are widely available and easily accessible because they are widely followed and carefully stored (Dyck & Zingales, 2003).
Nexis Uni (formerly known as LexisNexis) and company websites were used to retrieve reports of up to one year after the M&A. Many reports also included a forward-looking statement, containing beliefs about the future. After the assembling of these reports, CATA was used in the same way as was done to assess the organizational value differences. To my knowledge, a dictionary for socio-cultural integration has not yet been developed. Therefore, I drew upon the method developed by Short et al. (2010) to create a dictionary myself.
Firstly, a deductively derived wordlist was created. For this method, it is important to work with a sound definition (Short et al., 2010). I used the definition by Hajro (2015), who states that socio-cultural integration comprehends interpersonal relations, trust and a shared identity. Based on this definition and the work by Hajro (2015), a list of key words is developed. For a deductive word list, the synonyms of its words should also be considered (Short et al., 2010). Therefore, Thesaurus was used to assess an exhaustive list of synonyms to finalize the deductively derived word list (Appendix B),
random press releases and interview transcripts were chosen out of the total sample and assessed until theoretical saturation was reached. Additionally, this method was used to see if any words, either deductively or inductively derived, are used in ambiguous context and should therefore be excluded.
After the development of the dictionary (Appendix B) and the text analysis, a final score on socio-cultural integration was indicated by LIWC. This final score is the total amount of words in a document divided by the number of words, indicating how often words associated with socio-cultural integration have been used in a text. This method is used to control for the length of each analyzed text (Baur et al., 2016).
Control variables
Crisis period. In this research, several control variables that can influence the relationship
between organizational value differences and synergy realization have been included. First, I controlled for whether the M&A took place in or just before the financial crisis of 2008. I controlled for the financial crisis, because of its vast negative impact on the financial
performance of companies (Erkens, Hung, & Matos, 2012), such as the ROA. Therefore, it is likely that M&As during the financial crisis resulted in less (more) growth (decline) of ROA than M&As that took place before or after the financial crisis. Furthermore, during the
financial crisis, both the motivation to conduct M&As and the targeted companies, differed in comparison to non-crisis periods (Dunn, Intintoli, & McNutt, 2015).
Deal value. Within bigger M&As, firms are better capable to indicate common long-term
motives and strategies, which result in a smoother M&A process (Raquib, Musif, &
Mohamed, 2003). Furthermore, smaller companies are less likely to enhance their business performance as result of a M&A (Mayback & Baines, 2006). Therefore, in line with previous research, I controlled for the size of the M&A (Stahl & Voight, 2008). To operationalize the size of the M&A, the deal value in millions of euros is retrieved from the Zephyr database.
Times involved in a large M&A. Firms that are involved in M&As more often, tend to show
better financial results as consequence of the M&As (Fuller, Netter, & Stegemoller, 2002). Therefore, I controlled for the times the acquiring firm was involved in a M&A within the used sample. To operationalize the times a firm was involved in a M&A, I sampled and counted the times certain Bureau van Dijk (BvD) numbers were present in the sample. The BvD number is a unique number given to a company or company department by Bureau van Dijk, which is the company behind the ORBIS and Zephyr databases.
Statistical approach
Results
Descriptive statisticsThe used sample size contains 103 M&A, involving 206 companies. As presented in Table 1, the mean differences in organizational values between the companies involved in a M&A is 0.387 (SD = 0.288), meaning that the differences in emphasis on all the organizational values categories combined is 38.7%. The mean decline of synergy realization of the company after the M&A was -0.136 (SD = 4.232), which shows that on average, being involved in a M&A, results in a decline of 13,6% in ROA. However, the standard deviation shows a large
dispersion in synergy realization between different M&As. Furthermore, the mean emphasis on socio-cultural integration is 3.166 (SD = 1.302), with a minimum score of 0.000, which indicates that at least one company did not place any emphasis on socio-cultural integration after the M&A took place.
Table 1: Means, Standard Deviations, Minimums, Maximums and Product-moment correlations.
N=103
a = Based on t-tests of means comparison. b = In millions of euros.
** significant on p<0.05 level, two tailed: * significant on p<0.10 level, two tailed.
Hypotheses Tests
Hypothesis 1 implied that greater organizational value differences are associated with less synergy realization than smaller differences between organizational values. The results (Table 2) show that, opposed to hypothesis 1, greater organizational value differences significantly result in more synergy realization (B = 2.637, SE = 1.577, p = 0.098). Since this effect points toward the opposite direction as expected, hypothesis 1 is not supported.
Hypothesis 2 suggested that greater organizational value differences will lead to less socio-cultural integration. As opposed to hypothesis 2, the results (Table 2) show a reversed effect (B = 0.226, SE = 0.487, p = 0.645) and therefore do not support hypothesis 2. Although the effect is not statistically significant and relatively small in nature, it is still notable that the evidence suggests that greater differences in organizational values are more likely to result in less socio-cultural integration among companies involved in a M&A.
Hypothesis 3 proposed that socio-cultural integration among the companies involved in a M&A resulted in more synergy realization. As shown in Table 2, this hypothesis was not supported. Socio-cultural integration does have a positive effect on synergy realization;
however, this effect is not statistically significant and relatively small (B = 0.141, SE = 0.331,
p = 0.672).
Table 2: Results of the regression analysis to test the hypotheses. Synergy realization Socio-cultural integration Synergy realization Synergy realization
Model 1 Model 2 Model 3 Model 4
B SE B SE B SE B SE Intercept -1.559 1.281 3.303 .396 -.783 1.543 -1.940 1.683 Organizational value differences 2.637* 1.577 .226 .487 - - 2.611 1.586 Socio-cultural integration - - - - .141 .331 .112 .328 Crisis a -.697 .935 .096 .289 -.260 .908 -.708 .940 Deal value b .000 .000 .000 .000 .000 .000 .000 .000 Times involved in a large M&A .426 .545 -.189 1.68 .205 .535 .448 .551 R .171 .144 .059 .175 R2 .029 .021 .004 .031 N=103
a = 0 not in crisis period; 1 in crisis period b = In millions of euros.
* significant on p<0.10 level
Figure 2: Graphic representation of the findings in model 4.
Explorative research
The main results found in this study point toward the opposite direction as expected.
Table 3 presents the results of the independent effects of the different aspects of organizational values on synergy realization and socio-cultural integration. In all cases, I controlled for whether the M&A took place in or just before the crisis, the value of the M&A deal and in how many big M&As a company was involved in. None of the different aspects of organizational value differences have a direct statistically significant effect on synergy
realization. Interestingly, a distinction between aspects that have a negative effect on synergy realization and aspects that have a positive effect on synergy realization when differences are greater, can be made. Differences between companies in their view on cooperation, authority, and, to a lesser extent, reward and innovation have a negative effect on synergy realization. For affiliation, achievement, and, to a lesser extent, risk-taking and integrity the effect is the other way around. This means, that for the later values, greater differences between the companies involved in a M&A result in more synergy realization. This same direction was found during the linear regression analysis accessorizing hypothesis 1.
Looking at the effect of the different aspects of organizational values on socio-cultural integration, almost the same distinction can be made. In this case, only a different view on innovation between the companies has a positive instead of a negative effect. However, this effect (B = 0.008), as well as the effect of achievement (B = 0.010) and integrity (B = 0.012), is negligible small. Furthermore, the results (Table 3) show that cooperation has a statistically significant effect on socio-cultural integration (B = -0.277, SE = 0.165, p = 0.096). This means, that similar views about cooperation between companies result in more interpersonal relations, trust and a more comprehensive shared identity after the M&A took place.
Therefore, only for differences in cooperation, hypothesis 2 is supported.
for any of the mediation models was found. Interestingly, the direction of the indirect effects are similar to the direct effects of particular organizational value differences on synergy realization. However, all the indirect effect sizes are relatively small compared to direct effects of the particular organizational values on synergy realization.
Table 3: Results of the regression analysis of the main effects of different aspects of organizational values on synergy realization and socio-cultural integration
Difference in specific aspects of organizational value
Direct effect on synergy realization
Direct effect on socio-cultural integration
Indirect effect on synergy realization B SE B SE Effect SE 95% CIa Cooperation -.872 .542 -.277* .165 -.015 .079 -.151 to .186 Authority -.692 .507 -.036 .156 -.005 .038 -.087 to .082 Reward -.116 .707 -.078 .215 -.011 .051 -.148 to .069 Innovation -.074 .557 .008 .170 .001 .047 -.096 to .103 Affiliation .886 .960 .287 .293 .032 .093 -.153 to .241 Achievement .570 .901 .010 .275 .001 .062 -.143 to .131 Risk-taking .167 .513 .190 .155 .025 .068 -.107 to .180 Integrity .106 .595 .012 .182 .002 .048 -.103 to .105 N=103
a = based on 5,000 bootstrap samples
* significant on p<0.10 level
After exploring the effects of the differences in specific values, the effect of some of those values combined has been explored. To explore the combined effect of those values, firstly, the value differences that had a negative effect on synergy realization were separated from the value differences that showed to have a positive effect on synergy realization. For the latter group, no statistically significant effect was found. Only the combination of
affiliation and achievement (R2 = 0.011) showed to be a better predictor for synergy
realization than affiliation was alone (R2 = 0.010). However, the model which include all the
values combined (Table 2), still showed to be a better predictor of synergy realization (R2 =
0.031).
Combining the differences in value aspects that have a negative impact on synergy realization, did show some interesting results. Especially combining the cooperation and
0.045). As shown in Table 4, greater differences in believes about cooperation and authority between the companies involved in a M&A, result in less synergy realization (B = -1.541, SE
= 0.730, p = 0.037). This finding is, however more nuanced, in line with hypothesis 1. No
indication, that this effect is mediated by socio-cultural integration, was found (B = -0.015, SE = 0.092, 95% CI = -0. 191 to 0.200). In addition, the effect that differences in believes about cooperation has on socio-cultural integration, as shown earlier, disappears. Furthermore, when differences in believes about rewards, is combined with differences in believes about
cooperation and authority as well, the direct effect remains significant (B = -1.767, SE = 0.943, p = 0.064). Although, in this case the model is a statically worse predictor for synergy realization in both the direct effect (R2 = 0.036) and the total effect (R2 = 0.037).
Table 4: Results of the regression analysis for the effects of the combined differences in believes about authority and cooperation on socio-cultural integration and synergy realization.
Synergy realization Socio-cultural integration Synergy realization
Model 5 Model 6 Model 7
B SE B SE B SE
Intercept 1.557 1.356 3.765 .419 1.356 1.840
Authority & Cooperation differences
-1.541** .730 -.294 .226 -1.526** .740
Socio-cultural integration - - - - .053 .328
Crisisa -.338 .889 .116 .275 -.345 .894
Deal value b .000 .000 .000 .000 .000 .000
Times involved in a large M&A
.170 .519 -.212 .161 .181 .527
R .212 .188 .213
R2 .045 .035 .045
N=103
a = 0 not in crisis period; 1 in crisis period b = In millions of euros.
Discussion
The present study aimed to contribute to the existing literature by disaggregating the broadly used term of organizational culture and to theorize for and test, the effects of organizational value differences, as part of organizational culture, on M&A outcomes. Furthermore, I tried to identify the proposed mediating effect of socio-cultural integration in the relation between organizational culture and M&A outcome (Björkman, et al., 2007; Stahl & Voight 2008; Hajro, 2015), within the organizational value differences and synergy realization in M&As. Subsequently, the organizational values were disaggregated, as a research line of explorative nature, to identify the divergent effects of the different facets of organizational values.
The results in this study have shown that, as opposed to the expectations, congruence in the total set of organizational value differences, results in the realization of less synergies within a M&A. These findings run counter to the earlier findings of Chatterjee et al. (1992) and Appelbaum et al. (2009), who concluded that greater organizational cultural differences are negatively related to M&A outcomes. This remarkable result can, to a certain extent, be explained by the divergent effects of the different facets of organizational values, which will be elaborated on later. Furthermore, the relation found in this paper, is similar to the effect found in the seminal work by Meglino, Ravlin and Adkins (1989). They showed that value congruence result in more job satisfaction and commitment but that it is negatively related to performance. This may be explained by the fact that differences rather than similarities, can create a possibility to tap into new knowledge (Vermeulen & Barkema, 2001). Moreover, the entrance of new organizational members can have positive effects on the way workgroups function (Rink, Ellemers, 2009), regardless of the value congruence.
explained by the divergent effects of the different facets of organizational values. However, this result can also be explained by the degree of relatedness between the two firms
(Nahavandi & Malekzadeh, 1988). When two unrelated firms are involved in a M&A, the firms are less likely to interfere with the culture of the other firm (Walter, 1985), since there is no need for process integration and socio-cultural integration. Therefore, two firms may not always try to integrate after a M&A and consequently remain as separate identities. This reasoning may especially hold for the largest M&As, since in these M&As large parts of the companies often remain as separate identities.
Although the lack of statistical support remains, the results did suggest that socio-cultural integration leads to more synergy realization. The lack of statistical support may lie in a twofold of explanations. Firstly, as aforementioned, unrelated firms have less need for socio-cultural integration. Therefore, the effect of socio-cultural integration on synergy realization may have been compromised by M&As in which this need was not present to achieve synergy realization. Secondly, due to the relatively small sample size, the analyses lacked some statistical power. Thus, a larger sample which only contains related companies, may show a larger and statistically stronger effect. Furthermore, the expected mediating effect of socio-cultural integration was not found. This can be explained by the absence of existing effects between organizational value differences and cultural integration and socio-cultural integration and synergy realization. Additionally, since these non-significant effects are in an opposite direction, the indirect effect of value differences on synergy realization becomes even smaller.
innovation leads to more synergy realization. Although all these effects lack statistical support, the direction and separation of the effects remains noteworthy.
Furthermore, the combined effect of some of the organizational value facets, gives a more meaningful inside in the divergent effects of the different facets. By combining the believes about cooperation and authority and, to a lesser extent, including the reward values, statistical support was found. Congruence in believes about cooperation and authority leads to the realization of more synergies. The importance of similar believes about cooperation is intuitively appealing and is previously explained by Lundin (2007), who proposes that the motivation for cooperation often lies in resource complementation. For example, if
organization A depends on the resources of organization B and the other way around, cooperation is likely to be established, benefitting both organizations. However, if organization A depends on the resources of organization B, but organization B does not depend on the resources of organization A, organization B is not likely to see the need for cooperation and to share its resources with organization A. This will lead to less potential for the combined company. Moreover, if both companies are not in need for the resources of the other company, cooperation is not likely to take place at all and is also not needed for both companies to excel. This line of reasoning stresses the importance of congruence in believes about cooperation.
have the same view about cooperation and establish a procedural justice climate by having the same view on authority, to realize synergies. This effect may result from the fact that
cooperation is more likely to be meaningful and to turn into profitability when both parties involved experience the procedural justice climate to be fair (Luo, 2005). In other words, having similar believes about authority can strengthen the effect of congruence in believes about cooperation.
Theoretical implications
The first and most important theoretical implication of the current research is that different facets of organizational culture have divergent effects on M&A outcomes. Where previous research often only differentiated between the divergent effects of national and organizational culture (Pothukuchi, et al., 2002; Björkman, et al., 2007; Stahl & Voight 2008; Vaara et al., 2010; Hajro, 2015), the layered concept of organizational culture (Schein, 1990) was mostly used as a broad overarching concept. However, previous research already indicated that the use of this overarching concept may be too simplistic (House et al, 2004). The current research stresses this finding of House et al. (2004) and shows that even focusing on
organizational values as part of organizational culture may be too simplistic. This is shown by the opposite effects of congruence in believes about affiliation, achievement, risk-taking and integrity and the effects of believes about cooperation, authority, reward and innovation on synergy realization. These results may account for the lack of consistent findings, in the relation between cultural differences and M&A outcomes (Teerikangas & Very, 2006). For example, the significant effect of the congruence of believes about the combination of cooperation and authority stresses that separating facets of organizational values can lead to insightful information.
divergent effects of the different facets of organizational values and especially the significant effect of congruence in believes about cooperation on socio-cultural integration are
interesting. However, no indication for a meditating role of socio-cultural integration in the relation of any of the different facets of organizational values on synergy realization was found, bringing the theorists back to the drawing board.
Limitations and directions for future research.
Several limitations were identified within the current research. One of the strengths of this research, however, is the quantification of some of the non-financial factors that play a role within M&As. This was done by drawing upon previous research in which CATA was used to quantify information in ‘about us’-sections, mission statements, press releases and other public releases (Pennebaker, et al., 2003; Livengood & Reger, 2010; Short et al., 2010;
Zachary et al., 201). However, the use of CATA did not give as much insight in socio-cultural integration as anticipated upon. Conducting interviews, may for example, show different and more meaningful insights, which I was unable to find with the use of CATA. Conducting interviews may also control for the relatedness of the companies involved in the M&A. As aforementioned, within a M&A in which the companies are unrelated, socio-cultural integration may not be necessary for a M&A to be successful (Nahavandi & Malekzadeh, 1988). Therefore, it would be interesting to see if the proposed meditating effect of socio-cultural integration (Hajro, 2015) holds for related firms.
Furthermore, the small predictive power of the results should be considered. The
models with the highest predictive power (i.e. models 5 & 7) could only account for 4,5% (R2
= 0.045) of the change in synergy realization. Still, most companies in the research sample have an operating revenue of over 500 million US dollars. Therefore, even this small
small sample size is partly caused by the limited time frame in which the research was conducted. Still, the sample size of 103 M&As is sufficient to obtain trustworthy results (Virtanen, Kairisto, & Uusipaikka, 1998). However, a bigger sample size would create more statistical power (Hernández, Steyerberg, & Habbema, 2003) and therefore would have enhanced the strength of the results.
Lastly, I was not able to retrieve information about practices within the companies involved in this research. It would still be interesting to empirically test the organizational culture model (Schein, 1990), to see what effects differences in practices have on M&A outcomes, compared to the effects of organizational values. The current results point toward inaccuracies within the proposed model and indicates that the organizational culture concept is often taken too broadly. Meaningful insides could be gained by exploring the effects that different facets of organizational practice differences have on M&A outcomes and to see if the effects found in this paper hold when the effects of organizational practices are included. Also, it would be interesting to clarify the interplay between cooperation and authority value differences further.
Practical implications
The current research was conducted to shed some light in the underlying factors of the stunning failure rates in M&As. The increase in research about organizational and human resource implications within M&As has grown over the last years. Still, the most attention is paid to the financial predictors of companies involved in M&As (Stahl & Voight, 2008). This study shows that the soft aspects of the companies involved, should not be overlooked during the profound organizational change that accompanies a M&A.
First, it is important not to disregard the smaller facets of organizational culture. The
M&A outcomes. This result illustrates that an extensive planning and careful implementations should be made on forehand. Additionally, close attention should not only be paid to
divergent organizational values, because other soft assets may have important implications for M&A outcomes as well.
Furthermore, not all the value aspects seem to be equally important within a M&A. Special attention should be paid to congruence in beliefs about cooperation and authority, since the current study shows that incompatible believes about these topics may seriously harm the realization of synergies. The results also show that differences in other facets of organizational values may foster M&A outcomes. This finding may result from the notion that differences, rather than similarities, create the opportunity to tap into new knowledge (Vermeulen & Barkema, 2001). Therefore, it should be noted that simply having congruence in many aspects does not necessarily lead to successful M&A outcomes.
Conclusion
This study aimed to disaggregate the broadly used concept of organizational culture and to explore the role of organizational values and the mediating role of socio-cultural integration in M&A outcomes. The results indicate that, opposed to the expectations, organizational value differences lead to the realization of more synergies. Contrary, differences about cooperation and authority believes, as facets of organizational values, lead to less synergy realization. This indicates that the broadly used term of organizational culture may be too simplistic and the concept should be disaggregated. Furthermore, no support has been found for a mediating role of socio-cultural integration for any of the effects of the organizational value facets on
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