This comprehensive academic research paper studies the effect of corporate cultural similarity on merger decisions and outcomes. Using the similarity in firms’ corporate social responsibility (CSR) characteristics to proxy for cultural similarity, the authors find that culturally similar firms are more likely to merge.
Moreover, these mergers are associated with greater synergies, superior long-run operating performance, and fewer write-offs of goodwill. This evidence is consistent with the notion that cultural similarity eases post-deal integration.
The paper’s core hypothesis is that similarity in CSR behavior reflects cultural similarity between two firms and is positively related to the likelihood of firms forming merger pairs, and to superior post-merger performance.
To test this hypothesis, the authors constructed a novel measure of CSR similarity between two firms, derived from data on 124 different dimensions of firms’ CSR practices related to employee relations, environmental practices, human rights, community involvement, governance and product.
Among the findings, evidence is presented that a 1-standard-deviation increase in CSR similarity is associated with a 26% increase in the odds of successfully completing the deal, and that such deals complete at an 18% more rapid rate.
The paper’s discussion and analysis include a review of previous studies on the same or similar issues, CSR measurement and data, merger and acquisition data, post-merger integration, cross-sectional evidence on integration, and a review of alternative measures of CSR. The paper features an extensive Reference Section and Statistical Tables.
In concluding, the paper emphasizes that merger integration is critically important to acquirers: the realization of merger synergies depends on the ability of the acquirer to smoothly incorporate the target firm into their business.
To this end, cultural “fit” (or similarity) between merging partners is a critical component that contributes to the success of an M&A deal. One important aspect of a firm’s culture is its shared beliefs and values relating to CSR.
While there is ample anecdotal and survey evidence about the importance of CSR in corporate culture, and of the cultural fit in M&A deals, the authors assert that this is the first paper to attempt to measure and quantify such effects in large samples of deals.
Using this measure, the paper demonstrates that firms with similar CSR policies are more likely to decide to merge, complete their deals more quickly, experience greater merger synergies and improved long-run performance, and experience fewer changes in CSR policies after the deal is complete.
Originally published in the Journal of Financial and Quantitative Analysis. Volume 53, Issue 5, pp. 1995-2039, reproduced with permission.
By, Fred Bereskin, Assistant Professor of Finance at the University of Missouri; Seong Byun, Assistant Professor of Finance at Virginia Commonwealth University; Dr. Jong-Min Oh, Assistant Professor of Finance in the College of Business Administration at the University of Central Florida; and Dr. Micah Officer, Professor of Finance at Loyola Marymount University.
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