A Comparative Study of Cross-Border and Domestic Acquisition Performances in the South Korean M&amp;A Market: Testing the Two Competing Theories of Culture

Sung-Jun Lee,Joongwha Kim,Soojin Kim

doi:10.3390/su11082307

A Comparative Study of Cross-Border and Domestic Acquisition Performances in the South Korean M&A Market: Testing the Two Competing Theories of Culture

Sung-Jun Lee, Joongwha Kim + Show 1 more

Open Access

https://doi.org/10.3390/su11082307

Copy DOI

Journal: Sustainability	Publication Date: Apr 17, 2019
Citations: 5	License type: CC BY 4.0

Affiliation: Hankuk University of Foreign Studies

Abstract

To gain a sustainable competitive advantage through cross-border mergers and acquisitions (M&As), acquiring firms need to correctly anticipate the consequences of national cultural differences. By comparing the cultural antecedents as well as the performances of domestic M&As (DMA) and cross-border M&As (CMA) in the Korean M&A market from 1999 to 2007, this study aims to gauge whether CMAs can be a viable option for a sustainable growth strategy. This paper tests two conflicting hypotheses (H) regarding the effects of cultural differences. From the perspective of the essentialist (“classic”) concept of culture, DMAs will outperform CMAs (H1) because culture clashes may take place less often in DMAs than in CMAs. However, from the perspective of the social constructivist concept of culture, the post-merger performance will be dependent upon the stability and legitimacy of the intergroup status relations between the acquiring and acquired firms regardless of whether it is DMA or CMA (H2). This study also scrutinizes the moderating effects of the level of integration on these two hypothesized relationships (H3 and H4). The results of this paper demonstrate that the social constructivist concept of culture overall provides a better theoretical explanation.

Highlights

The possibility for various synergistic outcomes with acquired firms is one of many incentives that propel firms to engage in mergers and acquisitions (M&As) as a sustainable growth strategy
A good number of prior M&A studies argued that cross-border M&As (CMAs) with both national and organizational cultural differences were more likely to fail due to poor integration than domestic M&As (DMAs) with merely organizational cultural differences [4]
In order to compare the differences in the post-merger performance of DMAs and CMAs, we conducted the independent sample t-test using the acquired firms’ return on assets (ROA) and industry-adjusted ROA respectively

Summary

Introduction

The possibility for various synergistic outcomes with acquired firms is one of many incentives that propel firms to engage in mergers and acquisitions (M&As) as a sustainable growth strategy. A wide range of issues were discussed (e.g., speed of integration, employee resistance, autonomy removal and level of integration), cultural differences between the acquiring and acquired firms were (and still are) often seen as one of the most critical determinants that hinder a sustainable M&A success [2,3] These studies basically suggested that cultural differences, if significant enough, may cause severe organizational problems and, impede the creation of synergistic effects and have a negative impact on the post-merger performance. In this regard, a good number of prior M&A studies argued that cross-border M&As (CMAs) with both national and organizational cultural differences were more likely to fail due to poor integration than domestic M&As (DMAs) with merely organizational cultural differences (double-layered acculturation) [4]. This argument is based on the premise that national cultural differences reflect more fundamental differences in their so-called “core values” than organizational cultural differences [5]

Objectives

Methods

Results

Discussion

Conclusion