M&A and Post Merger Integration in Banking Industry: The Missing Link of Corporate Culture

Abstract

The intense concentration process taking place in the financial systems of the major countries has attracted substantial attention from stakeholders and academics.

The impact of M&A on value creation and efficiency / effectiveness improvements of banks involved appears, on the whole, disappointing and still hard to create benefits for customers. The reason seems to lie in the difficulty of governing a post-merger integration process, which generally requires good governance and management practices, significant experience and attention to cultural profiles and individuals' behavior.

More in detail, management literature recognizes the importance of corporate culture, considered as the set of values and decisions that drive individuals' behaviors within organizations, for explaining alliance success in M&A operations. In fact cultural clashes could determine conflicts and negative effects, on one hand, on the timing and the effectiveness of the post-merger integration process and, on the other hand, on motivation and turnover of individuals.

Set in Italian banking industry, this paper proposes a framework, applied to a representative sample of cases (about 78,2% of market share, based on total assets), for assessing cultural similarity of actors involved in M&A operations.

Corporate culture is measured using an ethnographic approach focusing on language as its special artifact. The assessment is based on the definition of some key concepts that are relevant for the banking industry (e.g., competencies, competition, customer, disclosure, human resources, innovation, risk) and on a text-analysis model applied to a corpus of reference texts produced by the surveyed banks three years before M&A. The elaboration of data uses Wordsmith 4, a text analysis software developed by Oxford University.

The paper is organized as follows: at first, we analyze and explain how low levels of cultural compatibility before M&A could limit the success of post-merger integration processes of banks. After, we propose and describe the measurement procedure of the cultural fit among bidder and target banks, based on text analysis.

Lastly, we conclude with the discussion of the results obtained for each couple of banks involved in M&A and with suggestions for future applications of our framework.

Keywords: Merger & Acquisitions, Post-merger Integration, Corporate Culture

JEL Classification: G21, G34, M14