Corporate Culture and M&As: International Evidence from Corporate Social Responsibility

Abstract

We examine the role of corporate culture in M&As by utilizing a unique corporate social responsibility (CSR) dataset, providing in-depth information on multiple dimensions of organizational culture in 22 developed markets. In accordance with the prediction of the culture clash theory, a wider divergence between the corporate cultures of the acquiring and target firms is associated with lower acquirer announcement and long-run returns as well as synergistic gains for the combined firm. Cultural misalignment also increases the time required to consummate a deal and reduces the likelihood of deal completion and the percentage of stock payment. Our results are robust to alternative explanations (e.g. similarities in national culture, acquirer CSR performance), alternative regression specifications, and alternative cultural misalignment measures. Our findings highlight the importance of a deeper understanding of CSR for the target selection process, integration planning, and financing choice of M&As to corporations and their investors.

Keywords: Mergers and Acquisitions; CSR; Organizational Culture; Post-Merger Integration; Cross-Border M&As; Acquisition Gains

JEL Classification: G14; G34; M14