Employee-Management Trust and M&A Activity

42 Pages Posted: 29 Jun 2012 Last revised: 17 Aug 2015

See all articles by Leonce Bargeron

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics

Kenneth Lehn

University of Pittsburgh - Finance Group

Jared D. Smith

North Carolina State University - Poole College of Management

Date Written: July 1, 2015

Abstract

We examine the relation between the trust that employees have in management and the M&A activity of firms. We measure this trust by using rankings compiled by the Great Place to Work Institute (GPWI) from 1998 to 2011. Although the volume of M&A activity is not significantly different for firms with strong cultures of trust (“SCT firms”) versus other firms, the relative size of acquisitions announced by SCT firms is significantly smaller than the size of acquisitions announced by other firms. Furthermore, when SCT firms announce relatively large acquisitions, bidder returns and the percent change in the combined values of bidders and targets are lower than the corresponding returns for other firms. Finally, when SCT firms make large acquisitions, they are significantly more likely to suffer a loss in their GPWI ranking as compared with other SCT firms. Overall, the results are consistent with the conclusion that the M&A policies of firms are influenced by a culture of trust between employees and management.

Keywords: Mergers, Acquisitions

JEL Classification: G34

Suggested Citation

Bargeron, Leonce and Lehn, Kenneth and Smith, Jared D., Employee-Management Trust and M&A Activity (July 1, 2015). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2096242 or http://dx.doi.org/10.2139/ssrn.2096242

Leonce Bargeron

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-4397 (Phone)

Kenneth Lehn (Contact Author)

University of Pittsburgh - Finance Group ( email )

372 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-2034 (Phone)

Jared D. Smith

North Carolina State University - Poole College of Management ( email )

Nelson Hall
Raleigh, NC 27695-8614
United States

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