M&A and post merger integration in banking industry: the missing link of corporate culture

Carretta, Alessandro and Farina, Vincenzo and Schwizer, Paola (2007): 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks; Merger & Acquisitions; Post-merger Integration; Corporate Culture
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M14 - Corporate Culture ; Diversity ; Social Responsibility; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

References

ALTUMBAS Y., MARQUES IBANEZ D. (2004), “Mergers and acquisitions and bank performance in Europe. The role of strategic similarities”, in ECB Working paper series.

BARNEY J.B. (1986), “Strategic Factor Markets: Expectations, Luck and Business Strategy”, Management Science, Vol. 32 (10), pp. 1231-1241.

BERGER P. L., LUCKMANN T., (1967), “The Social Construction of Reality: A Treatise in the Sociology of Knowledge”, Anchor, New York.

BLAKE R.R., MONTON J.S. (1984), “How to Achieve Integration on the Human Side of the Merger”. Organizational Dynamics, 13 (3), 41-56.

BOWMAN E. H., (1984), “Content analysis of annual reports for corporate strategy and risk”, Interfaces, vol. 14, n. 1.

BUONO, A.F., BOWDITCH, J.L., LEWIS, J.W. (1985). “When cultures collide: The anatomy of a merger”, Human Relations, vol. 38, n.1, pp. 477–500.

CARRETTA A. (2001), “Il governo del cambiamento culturale in banca. Modelli di analisi, strumenti operativi, valori individuali”, Bancaria Editrice, Roma.

CARRETTA A. (2007), “Creazione di valore nel governo dei processi di fusione e acquisizione nel sistema finanziario”, in (Eds) Carretta A, Schwizer P., “Change management e post merger integration. Un’analisi della creazione di valore nel governo dei processi di fusione e acquisizione nel sistema finanziario”, Newfin Università Bocconi, Milano.

CARRETTA A., FARINA V., SCHWIZER P., (2005a), “Banche, cultura dei fidi e capitale sociale: si può finanziare la fiducia?”, in Bracchi G., Masciandaro D. (Eds), X Rapporto sul Sistema Finanziario Italiano “Le banche italiane e la finanza per lo sviluppo: territori, imprese e famiglie”, Edibank-Bancaria Editrice, Milano.

CARRETTA A., FARINA V., SCHWIZER P., (2005b), “Banking regulation towards advisory: the “culture compliance” of banks and supervisory authorities”, Paper presented a European Academy of Management (EURAM) 5rd Annual Conference “A Stakeholder Perspective on Financial Markets; Managing reputation, investor relation, corporate governance and leadership”, TUM Business School, Munich, Germany.

CHATTERJEE S., LUBATKIN M., SCHWEIGER O., WEBER Y. (1992), “Cultural differences and shareholder value in related mergers: Linking equity and human capital”, Strategic Management Journal, 1992, vol. 13, n.5, pp. 319–34.

D’AVENI R.. A., MACMILLAN I., (1990), “Crisis and the content of managerial communication: A study of the focus of attention of top managers in surviving and failing firms”, Administrative Science Quarterly, vol. 35.

DATTA D.K. (1991), “Organizational fit and acquisition performance: effect of post acquisition integration”, Strategic Management Journal, Vol. 12, pp. 281-297.

FARINA V., (2007), “L’analisi della cultura aziendale attraverso il linguaggio: un’applicazione all’interno del gruppo Unicredit”, in (Eds) Carretta A, Schwizer P., “Change management e post merger integration. Un’analisi della creazione di valore nel governo dei processi di fusione e acquisizione nel sistema finanziario”, Newfin Università Bocconi, Milano.

FERRETTI L. (2000), “Strategie competitive e processi di crescita dell’impresa”, Franco Angeli.

FINMONITOR (2006), “Le fusioni bancarie. La lezione dell’esperienza”, Bancaria editrice, Roma.

GRANT R.M. (1999), “L’analisi strategica per le decisioni aziendali”, Il Mulino, Bologna.

HAMBRICK D., CANNELLA B. (1993) “Relative standing: A framework for understanding departures of acquired executives”, Academy of Management Journal, vol.36 n.4, pp. 733–62.

HASPESLAGH P.C., FARQUHAR A.B. (1987), “The acquisition integration process: A contingent Framework”. Paper presented at the Seventh Annual International Conference of the Strategic Management Society, Boston.

IRRMAN O., (2005), “Communication dissonance and pragmatic failures in strategic processes: the case of cross-border acquisitions”, Advances in strategic management, n. 22.

JEMISON D.B., SITKIN S.B. (1986a), “Acquisitions: The process can be a problem”, Harvard Business Review, March-April, pp. 107-116.

JEMISON D.B., SITKIN S.B. (1986b), “Corporate acquisitions: a process perspective”, Academy of Management Review, vol 11 n. 1, pp. 145-163.

KABANOFF B., WALDERSEE R., COHEN M., (1995), “Espoused Values and Organizational Change Themes”, Academy of Management Journal, vol. 38.

KELLY E. F., STONE P. J., (1975), “Computer Recognition of English Word Senses”, North-Holland, Amsterdam.

KPMG (2004, 2005), Rapporto Mergers & Acquisitions, Corporate Finance.

KRIPPENDORFF K., (1980), “Content analysis: an introduction to its methodology”, Sage publications, Beverly Hill.

KRUG J. A., HEGARTY W. H. (1997). “Postacquisition Turnover among U.S. Top Management Teams: an Analysis of the Effects of Foreign vs. Domestic Acquisitions of U.S. Targets”, Strategic Management Journal, vol. 18 n. 8, pp. 667–675.

KUSSTATSCHER V., COOPER C.L. (2005), “Managing Emotions in Mergers and Acquisitions“, E.Elgar Publ. Cheltenham, UK; Nordhampton, MA, USA, pp. 213.

LASSWELL H. D., NAMENWIRTH J. Z., (1969), “The Lasswell Value Dictionary”, Yale University Press, New Haven.

LEVINSON S., (2003), “Language and mind: Let’s get the issues straight!”, In D. Gentner and S. Goldin-Meadow (Eds.), Language in mind, MIT Press, Cambridge.

LORENZONI G. (1992), “L’evoluzione degli studi sulle strategie d’impresa”, Sinergie, n. 27.

LUBATKIN M., SCHWEIGER D., WEBER Y. (1998) “Top management turnover in related M&As: An additional test of the theory of relative standing”. Journal of Management, vol. 25, n.1, pp. 39–52.

MEYER J. W., ROWAN B., (1977), “Institutionalized organizations: Formal structure as myth and ceremony”, American Journal of Sociology, vol. 83 p. 340.

NAHAVANDI A., MALEKZADEH A. (1988), “Acculturation in Mergers and Acquisition”, Academy of Management Review, Vol. 13, pp. 79-90.

OSGOOD C. E. SUCI G.J., TANNENBAUM P.H. (1957) “The Measurement of Meaning”, University of Illinois Press, Urbana.

ROBERTS C.W., (1997), “Text Analysis for the Social Sciences: Methods for Drawing Statistical Inferences from Texts and Transcripts”, Lawrence Erlbaum, Mahwah.

ROSA J. A., PORAC J. F., (2002), “Categorization bases and their influence on product category knowledge structures”, Psychology & Marketing, vol. 19, n. 6.

ROUSSEAU D. (1990), “Assessing organizational culture: The case for multiple methods.” In Climate and Culture, ed. B. Schneider. San Francisco: Jossey-Bass.

RUOZI R. (2001), “La cultura delle fusioni e delle acquisizioni”, in A.Carretta (Editor), Il governo del cambiamento culturale in banca. Modelli di analisi, strumenti operativi, valori individuali, Bancaria Editrice, Roma.

SALES A. L., MIRVIS P. H. (1984), “When Cultures Collide: Issues in Acquisition”, in J. R.. Kimberly, Quinn R. E. (eds.) (1984), New Futures: The Challenge of Managing Corporate Transitions, Dow Jones-Irvin: Homewood.

SALTER M., WEINHOLD W. (1979), “Diversification Through Acquisition”, The Free Press: New York.

SCHALL M.S. (1983), “A communication-rules approach to organizational culture.” Administrative Science Quarterly, 28: 557-581.

SCHEIN E.H. (1983), “The role of the founder in creating organizational culture.” Organizational Dynamics, 12: 13-28.

SCHOENBERG R. (2000). “The Influence of Cultural Compatibility within Cross-Border Acquisitions: A Review’. In C. Cooper and A. Gregory (eds), Advances in Mergers and Acquisitions, 1, pp. 43–60. JAI Press, Amsterdam.

SCOTT M. R., (1999), “WordSmith tools”, Oxford University Press.

SHRIVASTAVA P. (1986), “Postmerger Integration, Journal of Business Strategy”, vol. 7 n. 1, June, pp. 65-76.

STAHL G. K., VOIGT A. (2003). “Impact of Cultural Differences on Merger and Acquisition Performance: A Qualitative Review”. Paper presented at the European International Business Academy 29th Annual Conference, Copenhagen, 11–13 December.

STONE P. J., DUNPHY D. C., SMITH M. S., OGILVIE D. M., (1966), “The General Inquirer: a computer approach to content analysis”, MIT studies in comparative politics, MIT Press, Cambridge.

TAJFEL H., TURNER J. C. (1979), “An integrative Theory of intergroup conflit”, in W. G., Austin e S., Worchel (Eds.), The Social Psychology of Intergroup Relations, Monterey, California, Brooks/Cole.

WEBER R. P., (1990), “Basic Content Analysis”, Sage Publications, 2nd ed. Newbury Park.

WERNERFELD B. (1984), “A resource-based view of the firm”, Strategic Management Journal, n.5.

WHORF B. L. (1956), “Language, Thought and Reality” in (a cura di) Carroll, J. B, Language, Thought, and Reality: Selected Writings of Benjamin Lee Whorf, MIT Press, Cambridge.

WILKINS, A.L., OUCHI, W.G. (1983) “Efficient cultures: Exploring the relationship between culture and organizational performance”, Administrative Science Quarterly, 28: 468-481.

ZOLLO M., SINGH H. (1999), “Post-acquisition strategies, integration capability, and the economic performance of corporate acquisition”, INSEAD.