Abstract: This paper presents new large sample evidence on the role of corporate culture in mergers and acquisitions (M&As) and how corporate culture evolves over time. Our starting point is the most often-mentioned values by the S&P 500 firms on their corporate Web sites (Guiso, Sapienza, and Zingales 2015): innovation, integrity, quality, respect, and teamwork. Using the latest machine learning technique and earnings conference call transcripts, we obtain corporate cultural values for a large sample of firms over the period 2003–2017. We find that firms score high on the cultural value of innovation are more likely to be acquirers, whereas firms score high on the cultural values of quality and respect are less likely to be acquirers. In terms of merger pairing, we find that firms closer in cultural values, particularly, of innovation, quality, or teamwork, are more likely to do a deal together, whereas firms further apart in cultural values are less likely to do the same. Moreover, we show that firm-pairs sharing the dominant culture of teamwork take a shorter time to complete an announced deal and are associated with fewer post-merger integration challenges, whereas firm-pairs dominant in different cultural values of quality versus teamwork are associated with poor stock market performance and more post-merger integration challenges and retention issues. Finally, we show that post-merger, acquirer cultural values are positively associated with pre-merger target firms’ cultural values, suggesting acculturation. We conclude that corporate culture plays an important role in M&As and corporate culture itself is also shaped by M&As.
Author: Kai Li, Feng Mai, Rui Shen, Xinyan Yan
Date: April 2018; Last revised: April 26, 2020