The Impact of Organizational Culture Differences on Bidder and Target Companies’ Share Values following Merger Announcement: Evidence from a Stock Market Perspective

Abstract

Following the cultural distance and the acquisition cultural risk propositions, I study the impact of organizational culture differences among merging companies on their short-term stock performance following merger announcement. I assume that on announcement the market cannot access companies’ organizational culture detailed information, that it focuses on its exposure risk, and that it is inefficient. Using public information available prior to merger announcement, I construct proxies of organizational culture differences among the merging companies and a proxy of a factor mitigating the acquisition cultural risk. Analyzing 6,742 merger announcements released by publicly traded U.S. companies between 1984 and 2005, I show that following merger announcement the market prices a factor mitigating the acquisition cultural risk rather than the magnitude of specific organizational culture differences. Moreover, the market prices stocks of companies involved in high-risk mergers lower than of companies in low-risk mergers. Results are robust to size and period controls.

Citation

Teucher, B.M. (2012), "The Impact of Organizational Culture Differences on Bidder and Target Companies’ Share Values following Merger Announcement: Evidence from a Stock Market Perspective", Finkelstein, S. and Cooper, C.L. (Ed.) Advances in Mergers and Acquisitions (Advances in Mergers and Acquisitions, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 89-122. https://doi.org/10.1108/S1479-361X(2012)0000011008