Impact of Cultural Differences on Merger and Acquisition Performance - Advances in Mergers and Acquisitions, Cary L. Cooper & Sydney Finkelstein (eds.)

Conventional wisdom tends to hold that differences in business cultures are often a major obstacle in M&A-related activities. But empirical research has overwhelmingly produced mixed results. Associate Professor of Organisational Behaviour Günter Stahl and co-author Andreas Voigt provide a review of previous studies that have examined the impact of cultural differences on three types of M&A outcome measures. They have also developed a model that synthesises their current understanding of the fundamental role of culture in M&A.

by Günter Stahl
Last Updated: 23 Jul 2013

There is a wealth of both anecdotal and theoretical evidence that cultural differences can, and frequently do, disrupt the attempted integrational benefits sought in mergers and acquisitions. However as Associate Professor of Organisational Behaviour Günter Stahl and co-author Andreas Voigt investigate in depth, empirical research on the performance impact of cultural differences in M&A has generally offered mixed results.

Some studies have found national and/or organisational cultural differences to be negatively related to M&A performance measures. Yet others have disclosed either a positive relationship, or largely found cultural differences to be undemonstrably related to such performance. Stahl and Voigt offer several explanations for the generally inconsistent findings of prior research on the effect of cultural differences in this area, and develop a model that synthesises their current understanding of the fundamental role of culture in M&A.

The authors provide a review of previous studies that have examined the impact of cultural differences on three types of M&A outcome measures: accounting-based performance measures, stock market returns, and socio-cultural integration outcomes. "While theoretical models of the role of culture in M&A emphasise the 'dark side' of cultural diversity," the authors posit, "empirical research indicates that cultural differences, under some conditions, may be an asset rather than a liability in M&A."

Their accumulation of research evidence points to an interesting tendency: "Cultural differences may actually have a positive effect on aspects of the socio-cultural integration process, such as the cultural sensitivity and tolerance exhibited by the acquiring firm managers". In contrast, "(organisational) cultural differences were generally found to have a negative impact in domestic settings".

In the authors' estimation, such findings support the conclusion that national cultural differences are very often more prominent than organisational ones. This serves to increase managers' awareness of the significance of cultural factors in the post-merger/acquisition integration process. This may in many instances lead to more culturally sensitive integration management.

However, Stahl and Voigt concede that the studies included in their literature review tend to differ widely in terms of sample characteristics; geographical areas covered; methodologies used; dimensions of cultural differences examined, etc., thereby making firm conclusions about the verifiable impact of such differences problematic.

The authors offer both tentative explanations and an integrative model in an effort partially to remedy these defects. These include analyses of:

" How the impact of cultural differences depends on the outcome variable being examined.

" How cultural issues cannot realistically be viewed in isolation from other variables.

" The ongoing, positive shift in focus from the initial conditioning factors to the integration process involved in M&A activities.

" The concept of "culture" as both a multi-level construct and an emergent process.

In an effort to offer a more integrative framework than provided in existing research on this topic, the authors present a model synthesising theoretical perspectives and empirical findings. This helps to account for some of the complexity underlying the culture-performance relationship in M&A, and should help in guiding future research by delineating the main mechanisms through which cultural differences may affect M&A performance.

Stahl and Voight conclude that the relationship between cultural differences and M&A outcomes is more complex than previously appreciated. They summarise their findings by stating that "whether cultural differences have a positive or a negative impact ... or any impact at all, depends on the performance measures examined, and ... on the nature and extent of cultural differences, the integration approach taken, the interventions chosen to manage cultural differences, and a variety of other factors. Rather than asking if cultural differences have a performance impact in M&A, future research endeavours should focus on how cultural differences affect the integration process."

JAI Press, 2005

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