Introduction
Mergers and acquisitions (M&A) are a common business strategy many organizations employ to increase their market share, improve efficiency, and gain an advantage over their rivals. M&A necessitates merging two or more distinct organizations to form a single entity (Chiaramonte et al., 2023). M&A can be accomplished through various corporate combinations, including mergers, acquisitions, and joint ventures (Hosseini et al., 2019).
Most mergers and acquisitions aim to increase the firms’ value to benefit their shareholders (Marks & Mirvis, 1992). Obtaining access to new markets, technology, and resources may be accomplished through mergers and acquisitions. Consequently, M&A is an integral component of business in the modern world.
Studies on Mergers and Acquisitions
Studies on M&A have focused on the financial, strategic, and operational implications of mergers and acquisitions. For instance, Zhang et al. (2020) have studied the effect of mergers and acquisitions on firm performance and shareholder returns. Additionally, Xie et al. (2017) looked at the drivers of M&A, such as the relationship between the acquiring firm’s motivation and the transaction’s success. Finally, Segal et al. (2021) researched the roles of different types of advisors, such as investment bankers and lawyers, in the M&A process. Finally, scholars have examined the impact of M&A on other stakeholders, such as employees, creditors, and suppliers.
Linkage to the Research Question
Mergers in industrialized and emerging nations differ, according to merger literature. In developed nations, it is driven by strategic goals like access to new markets and technology, whereas in underdeveloped countries, it is driven by financial goals like tax optimization and cost reductions (Trautwein, 1990). It can buy natural resources from poor countries. Political clout is sometimes larger in mergers in poorer countries (Cartwright & Cooper, 1993).
M&A enhances market power, efficiency, and savings in developed and developing countries but also carries hazards (Seo & Hill, 2005). It can make management, integration, and conflict between merging companies more difficult (Yao, 1970). Before continuing, businesses must weigh the risks and rewards of M&A.
Studies about M&A on Developing Economies Mergers
Studies on mergers and acquisitions have explored the differences between mergers in developed and developing economies. Schraeder and Self (2003) have indicated that in developed economies, M&A is typically driven by strategic objectives, while in developing economies, it is often driven by financial motives (Grover et al., 2018). Additionally, in developing countries, M&A is used to acquire valuable natural resources (Upadhyay & Kumar, 2020). Lastly, mergers in developing countries often involve greater political influence than those in developed countries.
Theories of Mergers and Acquisitions
One of the M&A theories is the resource-based view of the firm. It suggests that firms may pursue M&A to access valuable resources and capabilities that are not accessible within their home markets (Karamustafa-Köse et al., 2022). Firms in developing countries need to merge to acquire resources and capabilities that are unavailable in their domestic markets (Jung et al., 2020). This theory suggests that mergers can be used to acquire valuable natural resources and gain access to unique skills and expertise unavailable in their domestic markets.
The second notion is the market power theory, which suggests that firms may pursue M&A in order to gain a competitive advantage. According to it, firms in developing countries may seek to merge to increase their market power and gain an advantage over competitors (Bereskin et al. 2018). It argues that mergers in underdeveloped nations may include more political influence than those in rich countries because corporations may utilize mergers to get favorable rules and regulations.
Organizational Culture
Organizational culture is defined as the shared values, beliefs, and behaviors of the members of an organization. The common culture of the organization defines its surroundings, aims, and strategies (Samal et al., 2019). It is important in determining an organization’s performance (Gazzola et al., 2022). It is equally critical to remember that organizational culture evolves and adapts to its surroundings (Jamal & Anwar, 2021). Therefore, organizations should be aware of the changes in their culture and leverage it to their benefit to guarantee the success of their operations.
Role of Organizational Culture in Mergers and Acquisitions
Organizational culture affects M&A transactions’ success and should be considered while assessing their effectiveness. According to Shu (2018), the positive outcome of the merger and acquisition process relies on the effective integration of the two companies. It is essential that the two firms merge their cultures and values properly to guarantee the success of the M&A procedure.
Moreover, Hope et al. (2010) noted that the culture of the acquiring firm can have a considerable influence on the personnel of the target company. The success of the M&A process hinges on the two companies’ ability to manage their employees and transition them into the new organization (Cumming et al., 2023). Therefore, the capacity of the two firms to effectively blend their cultures and values is a significant component in the merger’s success.
Studies on Organizational Culture
Studies have shown that organizational culture has an impact on the success of mergers and acquisitions. For instance, Bereskin et al. (2018) found that the culture of the acquiring firm had a significant influence on the personnel of the target company. The study noted that a successful integration of the two companies involved blending the cultures and values of both companies. Additionally, Cumming et al. (2023) found that the ability of the two firms to effectively manage their people and transfer them to the new firm was essential for the success of the M&A process. Furthermore, Shu (2018) highlighted the importance of properly integrating the two firms’ cultures and values in order to ensure the success of the M&A process.
Additionally, culture significantly influences the decision-making process involved in mergers and acquisitions. For instance, Samal et al. (2019) found that the decision-making process was influenced by the culture of the organization. They noted that the shared values and beliefs of the organization could shape the decisions made by the board of directors. Gazzola et al. (2022) discovered that corporate culture influences risk-taking. As a result, the organization’s culture influences its risk tolerance, which influences M&A choices.
Facts about Organizational Culture
It is now known that organizational culture is an important factor in the success of mergers and acquisitions. According to Jamal Ali and Anwar, organizational culture influences mergers and acquisitions by influencing corporate integration and decision-making (2021). The company’s culture also affects its willingness to take risks and make M&A decisions (Haapanen et al., 2019). Firms must be aware of their company culture and use it to their advantage in order to conduct mergers and acquisitions effectively.
Main Theories Supporting the Facts
Resource dependency theory (RD) explains corporate culture in mergers and acquisitions. According to this theory, organizations require environmental resources to flourish (Frederiksen, 2018). Organizations must devise mechanisms for obtaining the resources they require to function. Mergers and acquisitions are methods by which organizations acquire resources (Kiessling et al., 2021). According to the RD theory, an organization’s culture influences decision-making, risk attitudes, and resource acquisition tactics, influencing M&A.
In M&A, Institutional Theory (IT) stresses corporate culture. This theory holds that organizations must adhere to their institutional context’s norms, rules, and laws (Degbey & Pelto, 2021). This homogeneity is explained by institutional isomorphism. According to IT, the M&A process will be successful if the organizational culture meets the institutional environment (Zhang et al., 2020). To ensure M&A success, this attitude emphasizes understanding and adapting to the organization’s culture.
The Agency Theory (AT) of company culture in mergers and acquisitions is explained. According to this theory, agents—organizational representatives—act in accordance with organizational incentives (Chesley, 2020). According to the AT, corporate culture defines incentives and influences M&A agent decisions (Hope et al., 2010). This theory implies that company culture may have a substantial influence on merger and acquisition decision-making and should be taken into account when evaluating M&A performance.
Role of Organizational Culture in Mergers and Acquisitions
Organizational culture is critical in evaluating M&A performance. According to Shu (2018), M&As are successful when the two firms combine. To ensure M&A success, the two firms’ cultures and values must be suitably combined. Bereskin et al. (2018) further said that the culture of the acquiring firm may have an impact on target business personnel. The competence of the two companies to manage their staff and transfer them to the new company influences M&A success (Hosseini et al., 2019). As a result, the success of the merger is dependent on the firm’s ability to blend cultures and beliefs.
Main Theories Contributing to Mergers and Acquisitions
The integration perspective theory is a concept that contributes to the research on organizational culture and M&A. The theory states that the success of the M&A process depends on the integration of the two firms (Shu, 2018). The hypothesis implies that the integration of the two firms should be considered when evaluating the effectiveness of the M&A process (Hossain, 2021). Companies should recognize the potential for integration and use it to their advantage to ensure the success of their M&A transaction.
Moreover, the theory of competitive advantage donates the idea to the research on organizational culture and mergers and acquisitions, suggesting that the success of the M&A process is tied to the competitive advantage of the two companies (Bauer et al., 2018). This hypothesis indicates that the competitive advantage of both companies should be considered when evaluating the success of the M&A process (Dao & Bauer, 2021). To achieve M&A success, organizations should know and exploit their competitive edge.
Likewise, the theory of stakeholder interest backs the research on organizational culture and M&A. According to Jung et al. (2020), the interest of the stakeholders is crucial to the M&A process’s success. The hypothesis implies that the interests of the stakeholders should be taken into account when assessing the success of the M&A process (Sarala et al., 2019). Organizations should be aware of the stakeholders’ interests and use them to ensure the success of their M&A transaction.
Conclusion
Mergers and acquisitions are common in modern business. The success of mergers and acquisitions is influenced by organizational culture. According to research, organizational culture influences the integration and decision-making processes of mergers and acquisitions. Risk-taking and M&A decisions are also influenced by organizational culture. As a result, businesses need to comprehend and implement their cultural values in order to conduct mergers and acquisitions. Businesses may benefit from Resource Dependency Theory, Institutional Theory, and Agency Theory in understanding how culture influences M&A.
General Conclusions Being Drawn
Mergers and acquisitions are often used by businesses to increase market share, efficiency, and competitiveness. The culture of an organization has an impact on mergers and acquisitions (Graham et al., 2022). To successfully accomplish mergers and acquisitions, organizations must understand and apply their culture (Sitopu et al., 2021). The ability of the two organizations to manage their staff, transfer them to the new firm, and properly blend their cultures and values is critical to the M&A process.
The success of mergers and acquisitions is heavily influenced by organizational culture. The organizational culture has been discovered to affect the integration of the two organizations as well as the decision-making process involved in the transaction (González-Rodríguez et al., 2019). Furthermore, the organization’s culture influences its risk-taking behavior as well as the decisions made throughout the M&A process (Nogueira & Kabbach de Castro, 2019). As a result, it is critical for firms to understand and use their organizational culture in order to successfully complete mergers and acquisitions.
The importance of organizational culture in mergers and acquisitions is described by resource dependency, institutional, and agency theories. These theories stress the importance of identifying and responding to the culture of the company and how it influences decision-making, risk-taking, and resource acquisition (Frederiksen, 2018). To achieve M&A success, organizations must be aware of the potential for integration and leverage it to their advantage. Knowing how business culture influences M&A may aid firms in their success.
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