Stakeholder Orientation and Acquisition Performance

Abstract

Research summary:In this article, we study how a firm's stakeholder orientation affects the performance of its corporate acquisitions. We depart from prior literature and suggest that orientations toward employees, customers, suppliers, and local communities will affect long-term acquisition performance both directly and through its interactions with process characteristics, such as preacquisition relatedness and postacquisition integration. Analyses of data on a sample of 1884 acquisitions show overall a positive association between acquirers' stakeholder orientation and acquisition performance. In addition, we find support for a positive moderation of business relatedness on the performance impacts of stakeholder orientation. Structural integration has a similarly positive moderation effect only for some of the stakeholder categories. Managerial summary: Does collaboration with stakeholders during an acquisition pay off in terms of performance?The results of this research show that it is worth engaging stakeholders during the M&A process, but that the efficacy of involvement practices may depend on the type of stakeholders and the characteristics of the acquisition. While acquiring firms that take account of suppliers and local communities consistently overperform in their acquisitions, the inclusion of employees might be not beneficial (and even harmful) when the target firm operates in a dissimilar business or when managers do not plan to maintain it as a separate entity.

Green M&A Deals and Bidders’ Value Creation: The Role of Sustainability in Post-Acquisition Performance

“…According to Godfrey (2005) and Godfrey et al (2009), the explanation may be that firms with stronger CSR practices are able to create a form of goodwill that reduces the severity of negative reactions in case of negative events, reducing the firm risk and preserving the firm value for shareholders, as postulated by the insurance-link effect theory. This concept is further corroborated by Bettinazzi & Zollo (2017), who find a positive relationship between stakeholder-oriented companies and acquisition performance.…”

“…Three are the main advantages of accounting measures of performance with respect to market-based ones; the accounting proxies: (1) they measure the actual realized performance, (2) they measure different aspects of a firm's profitability and (3) they can explore potential synergies in the long-term perspective. Return on assets (ROA) results to be the most suitable proxy, among accounting measures, to run this kind of analysis given the fact it can capture financial performance under a longer-term perspective necessary for information on CSR performance, especially post-M&A, to settle in the market and get incorporated in the actual performance of the bidder (Bettinazzi & Zollo, 2017;Papadakis & Thanos, 2010;Zollo & Meier, 2008). ROA is calculated as the firm's net income divided by the firm's total assets.…”

“…According to this theory (Freeman, 1984) a firm can be viewed as a nexus of interdependent relationships among various stakeholders that contribute to its success and should be jointly satisfied. Following Bettinazzi & Zollo (2017), a stakeholder orientation within a firm may affect the acquisition process and its performance as a consequence. This is the underlying idea driving this work, given that firms with superior environmental practices tend to be strongly stakeholder-oriented.…”

“…Researchers use different measures of performance to analyse the effect of M&A deals on firm financial results using both market-based (Tobin's Q or stock returns) and accounting measures as return on assets (ROA), return on equity (ROE) or return on sales (ROS), providing different, sometimes even conflicting, results (Bettinazzi & Zollo, 2017;Zollo & Meier, 2008). how the new shift towards environmental responsibility affects M&A deals, since it is a relatively recent reality (Chan & Walter, 2014;Eisenbach et al, 2011;Lin & Wei, 2006;Yoo et al, 2011).…”

“…We employ a measure of target sustainability to explore the impact it has on the bidder's performance post-acquisition, following Bettinazzi & Zollo (2017), who find support for the positive relationship between stakeholder orientation and acquisition success, and Lin & Wei (2006), who highlight the importance of business ethics issues in order to measure the acquisition's performance. Researchers agree that ROA is one of the most reliable proxies of profitability in this field of research (Cording et al, 2010;King et al, 2004;Papadakis & Thanos, 2010;Zollo & Meier, 2008).…”