The Effects of Initial Differences in Firms’ Espoused Values on Their Postmerger Performance

Recent studies have concluded that most mergers and acquisitions (M&As) reduce rather than increase shareholder value for the acquiring firm, but understanding of why this occurs is limited. To date, most research has focused on issues of strategic fit, whereas this study examines the effects of organizational fit—specifically the effects of differences in firms’ pre-M&A configurations of espoused values in regards to relationships with employees versus production. The dependent variable of interest is the resulting entities’ subsequent financial performance (return on assets, adjusted for industry). The study analyzed 59 M&As between 1989 and 1996. The authors measured the espoused values of both firms in the transaction by content analyzing presidents’letters to shareholders in corporate annual reports. Using a longitudinal design, results show an inverse relationship between differences in espoused values and postmerger performance. Results and methodology are discussed in terms of their application beyond the M&A context.