A Stakeholder Perspective (Academic) - Corporate Renewal

            In the article, Determinants of the Strengths and Weaknesses of Acquiring Firms in Mergers and Acquisitions: A Stakeholder Perspective, the author is trying to show that the success or failure of a merger or acquisition is dependent on the strengths or weaknesses of the acquiring firms.  The interesting view of this article is that the author takes the perspective of the stakeholder.  There are several stakeholders to consider in each and every corporation.  Examples of stakeholders are employees, managers, shareholders, customers, suppliers, and the government, to name a few.  The author, Nina T. Dorata from St. John’s University, uses four particular stakeholders: shareholders, CEO, employees, and customers as the stakeholder perspectives to watch and review.  This is such an important subject to research because of the potential impact that mergers and acquisitions have on companies.  It is important to understand the perspective of stakeholders because they can make or break a company that goes through a merger or an acquisition.

            The type of research Ms. Dorata uses in order to make the correlation between the strengths and weaknesses of acquiring firms with the stakeholders perspective is data analysis.  Several dimensions were used in order to assess the strengths and concerns of the corporations.  The dimensions were “environmental, business issues, employee, social, governance, nuclear power, and tobacco.”  The research also included univariate and multivariate test in order to examine the relationship between the acquiring firm strengths and concerns and the test variables as well as the independent variables.  The research was gathered from 216 companies that went through mergers or acquisitions and lasted over a six-year period.  It was important to last over a six-year period so that the correlation could be monitored not only during the merger or acquisition but also for a time after it was completed.

            The findings of the research were based on the shareholders, CEO, employees, and customer perspectives. The findings show that institution, no layoffs, and size lead to more concern over the merger or acquisition but that returns, market to book ratio, days to closing, and industry lead to less concern over the merger and acquisition. In other words, as institutional investors have more monitoring power, concern of acquiring firm goes up.  When the acquiring firms hold off on layoffs or do not make them, concern for the acquiring firm goes up.  The combined size of the firm has a greater impact on its strength but also adds to its concern.  On the other hand, as returns to shareholders increase over the years, the concern of the acquiring firm goes down.  The higher the market to book ratio then the lower the concern to the acquiring firm.  The longer the days to close, reduces the concern of the acquiring firm.  If the merger or acquisition occurs in the same industry, then concern is low for acquiring firm.  The research is clear in that when concerns for the acquiring firm are low, the firm is stronger.  When the concerns of the acquiring firm are high, the firm is weaker. 

            As mentioned before, this research is very important in that it makes the correlation between stakeholder perspectives and the strength or weakness of a merger or acquisition.  This research is also very important for practicing managers or executives to understand.  If an executive understands that a certain merger or acquisition can weaken his company, it can save them of making a big mistake.  There are plenty of examples of mergers and acquisitions that should not have taken place.  One example is the merger between World Savings Bank and Wachovia.  Yes, they were both banks, but internally they were so different it was very hard to merge the two together.  Employees were different, CEOs were different, and culture was different.  Had the stakeholder perspective been taken into account, Wachovia might still be around today.

Reference:

Dorata, Nina T. (2012), Determinants of the Strengths and Weaknesses of Acquiring Firms in Mergers and Acquisitions: A Stakeholder Perspective, International Journal of Management, June2012, Vol.29 issue 2, p578-590, 13p