Master Thesis

Mergers and Acquisitions: The Social Impact on the Local Community

Bahare Taleghani

S4244052

MSc BA Change Management

Faculty of Economics & Business, University of Groningen

Supervisor: Prof. Jordi Surroca

Co-assessor: Dr. Ileana Maris-de Bresser

January 18, 2021

Word count: 11006

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Abstract

The current study used the stakeholder theory to study possible influential effects of Merger

and Acquisitions (M&As) on a crucial stakeholder group: the local community. Thus, the

study predicted that M&As have a negative impact on the well-being of the community

(Hypothesis 1) and additional changes of the management team present an even stronger

negative impact on the local community (Hypothesis 2). The hypotheses were empirically

tested in a panel data set including 80 US-firms of different industry sectors during a period

from 2010-2019. The obtained evidence did not meet the studied expectations as the overall

results did not support the predictions. However, a few interesting findings could be

recognized in the results, which may indicate a possible influential effect of M&As on the

local community.

It is recommended for future research to adjust the research through creating a more

controlled environment by implementing control variables of different perspectives and, more

importantly, to generate access to a larger sample to increase the possibility of finding

significant influences. Moreover, it can be advised to thoroughly study and select the

variables representative of a community’s well-being before conducting future research as the

authentic and reliable value and of these ‘community variables’ seem to be debatable.

Keywords: Corporate Social Responsibility, Local Community, Merger & Acquisition,

Stakeholder Theory, Strategic Management

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Mergers and Acquisitions: The social impact on the local community

In 2019, the worldwide number of Merger and Acquisition (M&As) deals were

approximately 40500 deals with a total value of approximately 3.8 trillion U.S. dollars,

according to the Institution for Mergers, Acquisitions, and Alliances (IMAA, 2020). These

exceptionally high numbers of M&As and their inconceivable value in transactions illustrate

the importance of this strategy in today’s corporate world (Sherman & Milledge, 2006). In

today's newspaper, one is often confronted with headlines stating insights on possible mergers

or new details on the acquisitions of one major company by another powerful company (BBC,

2019; Ewing et al., 2019). Therefore, as the attention around this ‘M&A movement’ is rising,

discussions on purpose and the accurate impact of mergers and acquisitions are also rising.

As technology has evolved and globalization has emerged, a fast-paced economic

market has been created (Clement, 2005), pressuring and forcing corporations to change their

strategic management methods, resulting in M&As becoming attractive as an influential

strategy to enhance growth (Griffin, 2018). A ‘merger’ can be characterized as an alliance of

two or more companies to create a new corporation (Bruner, 2005). As a result, the merger

may create potential synergies benefiting both firms (Robert et al., 2016). At the same time, as

ownership and management control are shared and need to be reorganized collaboratively

(Coyle, 2000), complications and difficulties may arise through the process (Robert et al.,

2016). An acquisition, on the other hand, describes a takeover of one business by another

business (Machiraju, 2007). Thereby, a change of ownership, control, organizational

structure, and cultural environment will follow (Coyle, 2000). By joining resources, the

resulting firm may gain the ability to develop innovations and unite their competences more

efficiently while decreasing costs (Alam et. al., 2014) and create a better basis for companies

to grow to a sustainable successful business (McDonald et al., 2005). Both mergers and

acquisitions are strategies used in strategic management to enhance the potential of firms by

uniting the strength of companies and increasing their power towards their competitors in

today’s business environment (Alam et. al., 2014).

The reasons for engaging in M&As have evolved. Initially, M&As were conceived to

increase the financial assets (Alam et al., 2014) of stable companies or, in the opposite case,

to support companies, which were in debt and had no other way to survive (Bruner, 2011).

Nowadays, the initial purpose is more complex as M&As today are initiated based on

strategic and operational purposes (Galpin & Herndon, 2010) rather than for mainly financial

reasons. However, these claims are constantly debated. It can be noted that the original

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behavior of buying other firms' assets still applies, however it can be identified in a broader

sense as nowadays this implies acquiring not mainly financial assets but rather assets like

"customer bases, better distribution channels, larger geographic boundaries, organizational

competencies and a variety of new talents" (Alam et al., 2014).

Another transition that can be observed is society and stakeholders are more

demanding towards companies’ roles within the society (Carroll & Buchholz, 2008) and have

therefore created stronger expectations towards businesses regarding their attitude, practices,

and products. According to Deloitte’s global millennial survey in 2019, “Millennials, born

between 1983 and 1994, invest their time and money in corporations that prioritize

employees, society, and the environment over generating profits”. Similar to that,

“Generation Zers, born between 1995 and 2002, are also mindful of conscious capitalism”,

which has presented corporations with the need to “engage more actively with stakeholders to

connect with the next generation of employees and consumers” (Deloitte, 2019, p. 5).

Therefore, prominent executive managers, such as Jeff Bezos of Amazon and Jamie Dimon of

JPMorgan Chase (Hazan, 2020) have participated in the signing of the statement on the

purpose of corporations (Bus. Roundtable, 2019), advocating to companies’ directors to take

responsibility for their firms’ activities and to imply appropriate business practices to

contribute to our society and environment.

This way of corporate thinking was first introduced by the Stanford Research Institute

(SRI) in 1960, suggesting the management to analyze, consider and interact not only with

their business shareholders but all stakeholders. This initial statement created a discussion on

the role of stakeholders in various disciplines by different scholars. Thereby, Freeman, as the

leading figure in this discussion, created the stakeholder theory (Freeman, 1984). Elaborations

of the theoretical concept illustrate that relationships with stakeholders are essential to create

the effect to benefit both businesses and society (Parmar et al., 2010; Porter & Kramer, 2011).

Additionally, scholars present that implementing stakeholder thinking in business practices in

an appropriate manner can create value for all stakeholders (Rahdari, 2016). Therefore, to

meet these expectations of society and generate organizational value continuingly, companies

are challenged to change their business practices to create sustainable impact, both

environmentally and socially (Rhodes et al., 2014).

While it seems that stakeholder theory provides an extensive theoretical framework

and discursive device within the literature (Fairfax, 2006; Noland & Phillips, 2010), critics

argue that the theory is lacking to provide a viable platform to all its stakeholders. Companies

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have been influenced by stakeholder theory and are aware of the fundamental value of

stakeholder’s participation in decision making (Cadman at el., 2017) and their impact on

creating sustainable development (Subbarao & Lloyd, 2011). However, evidence still shows

that the practical implication of involving stakeholders, particularly the group of the local

community, is often not considered during the process concerning M&As (Benites-Lazaro &

Mello-Théry, 2018). Adding to that, the literature on corporate law presents evidence that

shareholder’s interests in the context of M&As are still the main priority (Hazan, 2020).

Consequently, stakeholders’ interests are seen to be less important as they are not protected by

appropriate legal practices (Hazan, 2020). Hence, companies use their power and practices to

create benefits for their shareholders rather than for all stakeholders (Griffin, 2018), rising

social and environmental issues at the expense of society, particularly the community (Clark

& North, 2006; Frynas, 2005; Idemudia, 2009).

In order to draw further conclusions, it is essential to have access to adequate

information presenting the effects of corporate strategies like M&As on all stakeholders.

While research on the impact of M&As has increased its range by addressing social factors, a

review of the existing literature still presents a limited perspective on the information

concerning the social impact of M&As.

It can be determined that a significant amount of literature on the social aspects in

M&As focuses on presenting advice to the firm's management to enhance the organizational

transformation (e.g., Myeong-Gu & Hill, 2005; Kansal & Chandani, 2014) rather than

presenting the social impact of corporate strategies on its stakeholders. Additionally, research

on the social impact of M&As concentrates predominantly on the relationships between

companies and their customers or employees (e.g., Griffin, 2018; Hazan, 2020), whereas

research on other stakeholders, like the local community appears to be rarely represented in

the literature. Therefore, it can be stated that even when scholars have increased their focus on

social aspects within the M&A literature, there is still a clear gap in providing information on

the impact of all stakeholders.

Consequently, one essential stakeholder group, presented to be significantly affected

due to corporate activities following M&As, is the local community. Hazan’s (2020) study on

the legislative situation of M&As on stakeholders underlines that “communities can be worse

off because M&A can contribute to economic inequality; typically, wealthy shareholders

benefit while other stakeholders bear the hidden costs of M&A” (p. 798). The study continued

to present the need to implement legislative protection for all its stakeholders. Therefore, it

can be assumed that stakeholders like the local community are misrepresented both in the

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practical implementation of M&As and the theoretical education on the potential negative

outcomes.

In conclusion, it can be noted that existing literature on the social impact of M&As

still is lacking to provide adequate information on the role of local communities in our

corporate world and to present factors affecting all stakeholders, particularly the local

community, when strategic decisions resulting in an organizational change are made. Based

on these findings, this study addresses the following research question:

What is the social impact of M&As on the local communitiy?

This study aims to expand the understanding of stakeholder management in a case of

organizational change following an M&A. Thus, drawing on the stakeholder theory (Freeman,

1984; Parmar et al., 2010), the study’s purpose is to provide new information and empirical

evidence to support stakeholder-proponents concerning the “shareholder-stakeholder debate”.

Additionally, this study seeks to extend the range of existing literature on corporate strategies,

like M&As by researching their power on social groups. Thereby, the focus of this study is

predominantly on the possible implications on the well-being of local communities.

The emanating objective of this study is to contribute additional information and a

new perspective to existing discussions. Accordingly, these findings may support

understanding of the power of business practices and managerial behavior, following an

M&A, in a socio-economic context and express the need to consider all stakeholders,

including the community. Furthermore, this thesis aims to contribute its findings to support

the existing discussions on the need for change in corporate law (Hazan, 2020) to enhance

stakeholder thinking instead of shareholder wealth maximization in today’s corporate world.

This study uses empirical research to investigate the research question, therefore the

following hypotheses are created. First, the study hypothesizes that M&As will reduce the

local community’s well-being. Based on the stakeholder theory (Parmar et al., 2010; Freeman,

1984), outlined in the following theoretical part, this study assumes that corporate strategies in

form of M&As affect stakeholders, such as employees and the local community.

Correspondingly, multiple studies have identified that companies’ behavior can, for instance,

create or eliminate income for employees, which has an additional leverage effect on financial

and social capital within a community (e.g., Alvarado et al., 2017; Clark & North, 2006;

Iamsiraroj, 2016; Lehto & Böckerman, 2008; O’Shaughnessy & Flanagan, 1998). Therefore,

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in line with this literature, it can be assumed that corporate strategies like M&As may

influence a company’s behavior and thereby impact the well-being of a community.

Second, it is presumed that a change in the management team resulting from a Merger

and Acquisition will increase the negative impact on the local community’s well-being. In

line with the social identity theory in terms of organization (Ashforth & Mael, 1989; Kramer,

1991), organizational theory (Hogg & Terry, 2000) and additional literature (Myeong-Gu &

Hill, 2005), this study expects that individuals, in this case, managers, are likely to create a

relationship and connection within a certain group over time. This can be portrayed by an

organization or local community. With a change of management, a new managerial behavior

emerges (Burnes, 2017), which may break prevailing agreement or commitments made by

prior management towards their group, here, the local community (Brehm et al., 2013).

Therefore, this study expects a change in the management team to create negative

implications for the local community. The derivation of the hypotheses is described in depth

and literature-based in the literature review section of this study.

The significant presence of M&A deals presents a dominant and influential trend

within the corporate world while it displays limited information within the literature on the

social implications of M&As on its stakeholders, specifically the local community. Hence,

this presents a gap in the M&A literature and motivates this thesis to provide further research.

This paper contributes to scientific research in three ways.

The first contribution is to support the M&A literature by extending the scope of

research. As can be seen, most M&A works of literature focus on the financial impact.

Regarding the social impact of M&As, existing literature very strongly focused on one

stakeholder group: the employees. Contrarily, the M&A impact on local communities has not

been studied yet, despite its fundamental value as communities are an association of

individuals, as one social group representing society. To provide a better understanding and a

new narrative on the role of local communities, this research aims to present further

information and to create new discussions to extend the available information on the social

impact of M&As.

The second contribution is to provide empirical information to expand the knowledge

on M&A activities and the influence on its stakeholder, mainly local communities. Scholars

of various fields of research have discussed that the number of publications providing

empirical evidence is limited as “research aimed at exploring broader data sets is missing…”

indicating that “…more research efforts are needed to further the understanding” (Pedrini &

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Ferri, 2017, p. 54). This can be explained by the inadequate access to necessary data causing

scholars to use the case study approach within their research (Ashenfelter et al., 2014).

Consequently, studies may display limitations in their range (Ashenfelter et al., 2014) creating

biased results (Blonigen & Pierce, 2016). Therefore, this study’s approach to examining a

suitable dataset will provide adequate research on M&A activities and their influence on

stakeholder relationships.

Third, this thesis provides new information to revive past discussions and create new

ones. As new hard and soft principles like CSR, corporate governance code, or corporate law

regulations have emerged and been discussed more frequently in the past (e.g., Ismail, 2009;

Rhodes et al., 2014), it becomes visible that M&As are business practices that have a

significant effect on society. Debates surface on the commitment of corporations to take

responsibility, and other debates have discussed the need to set stricter legal restrictions to

protect society. Therefore, the findings of the study may contribute to the discussion by

pointing out new factors and solid results on possible effects.

Literature Review

Mergers and Acquisitions

Changes in the economic world resulting from globalization and technological

advancement affected not only the expectations and demands of the society but also triggered

new challenges for companies to be able to further compete. In addition, growth is often set as

the primary goal of businesses in today’s corporate environment (Alam et al., 2014). One way

to both generate growth and adapt to the challenges of the emerged new environment has been

through Mergers and Acquisitions.

Alam et al. (2014) have researched this strategy in today’s corporate world and

introduced M&As as a critical strategy in restructuring corporations. Supporting this claim,

Sherman and Hart (2006) state that M&As have risen to become a powerful and crucial

strategy for companies of all sizes and from different industries to ensure growth (Sherman &

Hart, 2006). As a contribution to strategic management literature, Alam et al. (2014) have

studied multiple aspects regarding the management of this corporate strategy. As a result, they

discuss that gaining assets and control of undervalued businesses were the main motivation of

M&As in the past. That way, companies were able to create a higher value for their

shareholders by reducing costs, saving taxes, rising their market shares, and weakening their

competition (Alam et al. 2014). Multiple scholars explain this drive by stating the common

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belief of the initial purpose of corporations were the maximization of shareholder wealth

(Friedman, 1970), which may also explain that the majority of existing research had set its

focus on investigating and presenting the financial impact of M&As.

However, discussions on the prioritization of shareholder wealth maximization have

emerged over the years and introduced the need to change corporate beliefs and behaviors

since strategic management literature has presented the significance of strategic and

operational planning (Galpin et al., 2010) in the current corporate world. Accordingly, many

scholars strongly propose that to avoid resistance and the failure of the planned change,

management needs to analyze the situation and involve stakeholders actively in an adequate

way (Cawsey et al., 2012). This way of strategic planning has been presented as an essential

tool in not only creating a collaborative and thereby supportive environment, but also to

achieve long-term business success (McDonald et al, 2005). In the case of M&As, Sherman

(2011) states that with limited preparation, expectations of resulting synergies can turn out as

illusions, causing M&As to become a failure rather than a success. This way of thinking has

been supported by multiple theorists creating discussions about a newly emerged paradigm

and increasing attention around the importance of different stakeholders in the context of

business, environmental and judicial disciplines (Carroll, 1989; Donaldson & Preston, 1995;

Freeman, 1984).

Stakeholder Theory and M&As Stakeholder theory, originally introduced by Freeman (1984), explains that when

relationships between companies and their stakeholders are included in the unit of analyses,

problems within the corporation can be dealt with more effectively. The theory defines

stakeholders as „any group or individual who can affect or is affected by the achievement of

the organization’s objectives“ (Freeman, 1984, p. 46). Multiple scholars have contributed

their definition to the stakeholder theory (Clarkson, 2010; Mitchell et al. 1997; Renn et al.,

1993; Soma & Vatn, 2014; Winterfelt, 1992). They demonstrated that identifying

stakeholders is not simple (Vos, 2003) but it is important to observe and considerably manage

the relationships with stakeholders (Elijido-ten et al., 2010) as they are ”…having a specific

stake in a certain decision“ (Soma & Vatn, 2014, p. 12). Adding to that, Donaldson and

Preston (1995) have addressed multiple aspects elemental to create an efficient relationship

with stakeholders. According to them, companies can generate better competencies and

become more competitive by showing proactive behavior towards identifying and engaging

with stakeholders. This implies actively exploring the relationship with social groups like

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„employees, customers, the community, suppliers, shareholders, and the natural environment“

(Rhodes et al., 2014) to enable the strategic change even further increasing firms’ wealth

substantially (Donaldson & Preston, 1995; Post et al., 2002). Hence, these findings of

numerous scholars identify the need for managers to create a strong relationship with their

stakeholders to benefit from corporate strategies like M&As. Due to the introduction of

‘stakeholder thinking’, stakeholder management (SM) has risen in its popularity. It has

increased the attention on presenting and discussing methods, which may enhance the

organization of relationships with different stakeholders. This can also enable the firm’s

ability to respond to stakeholders’ expectations (Habisch et. al., 2011). These developments

have not only created new discussions about the influence of SM on the performance of

organizations, but also valuable insight to understand the impact stakeholders can have on

business objectives (Heikkurinen & Bonnedahl, 2013; Matos & Silvestre, 2013; Ranängen &

Zobel, 2014).

One elemental concept that embodies stakeholder-thinking in today’s economic world

is corporate social responsibility (CSR). CSR is defined as “the ways in which a company’s

operating practices (policies, processes, and procedures) affect its stakeholders and the natural

environment“ (Waddock & Bodwelll, 2004, p. 25). According to CSR, organizations are not

only responsible for their direct business activities, but also for protecting the interest of

society (Sechina et al., 2016). Therefore, organizations are obligated to “comply with

legislation and voluntarily take initiatives to improve the well-being of their employees and

their families as well as for the local community and society at large” (Ismail, 2009, p. 2).

Stout (2013) argues that stakeholder theory can create wealth for both society and

corporations in the long run. This may also explain the observations that positive CSR

activities can improve financial performance (Callan & Thomas, 2009; Mishra & Suar, 2010;

Waddock & Graves, 1997) as the CSR concept is derived from stakeholder theory. Also,

research shows that CSR creates a positive image (Liu et al., 2010) of the company and its

services or products while engaging with customers and employees (Hoeffler et al., 2010).

Accordingly, overall long-term risks for the corporation can be reduced (Fifka, 2013), as CSR

contains practices that enable companies to ensure that “customers want their products,

employees want to work for them, suppliers want them as partners, shareholders want to buy

their stock, and communities want their presence” (Hazan, 2020). Supporting these

arguments, Rhodes et al. (2014, p. 6) state that to create long-term success organizations must

develop “a stakeholder perspective, rather than purely a shareholder perspective“. Thus,

Rhodes et al. (2014) further present the importance of considering stakeholder relationships

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and highlight that corporate strategies, like M&As, can increase their influence on companies’

success when implemented sufficiently. Thereby, they indicate that an adequate way means a

responsible consideration of the company's impact on society.

Throughout the last decade, observations on companies' CSR activities register a

transition as many scholars in varying disciplines and powerful corporate executive officers

publicly advocate companies to take responsibility for all their stakeholders. Consequently,

the attention on the importance and effectiveness of creating a stakeholder relationship has

increased. However, critical discussion on CSR practices has emerged over time. According

to Porter and Kramer (2011), CSR policies mainly focus on the reputation and philanthropy of

companies rather than presenting the investments of businesses for the communities.

Therefore, it can be assumed that stakeholder-oriented policies, like CSR, are currently not

able to fully reach the goal to guide and monitor companies to pay as much tribute to society

and the environment as they do to their shareholders.

Especially, in the context of M&As, it can be observed that business practices

prioritize maximizing shareholder wealth above generating benefits for the stakeholders. This

can be seen in a recent study by Hazan (2020), in which corporate law regulations on

stakeholders in M&As have been studied and missing legal representation of stakeholder

interests in M&As have been identified. The paper discusses a corporation’s responsibility,

shareholder primacy in corporate law, and the newly risen voices urging corporate law to

protect stakeholders' interests in cases of M&As. Thereby, many powerful executives, like

Jeff Bezos of Amazon and Jamie Dimon of JPMorgan Chase express their view on

management's responsibility to „create value for all stakeholders, including customers,

employees, suppliers, communities, and shareholders'' (Hazan, 2020, p. 751). Throughout the

analysis, the author elaborates on the shareholder-stakeholder debate and identifies that past

M&As conflicts have legally protected the shareholder's interest above those of the

stakeholders. Therefore, the paper continues, to display the urgency of a change in the

corporate legal system to protect stakeholders’ interest as communities and other stakeholders

are essential to generate a successful societal and economical system. Hence, the paper

determines the need to implement stakeholders in business processes and decisions

concerning M&As and suggests that the legal system and firm management need to balance

the expectation of stakeholders through implementing regulations representing the need “to

make stakeholder theory viable in M&As'' (Hazan, 2020, p. 800).

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Mergers and Acquisitions and Local Communities Even when communities are included in the group of key stakeholders, like costumer,

employees, or suppliers, affected or affecting companies (Freeman, 1984), it can be seen that

the impact of strategies like M&As on the local community is rarely presented in the

literature. To provide a better understanding of the role of the community and the potentially

significant impact M&As may have on communities, the following will highlight the existing

literature on communities within different disciplines and help to identify the hypotheses of

this research.

There is a wide range of concepts trying to define a ‘community’. Accordingly, Hillary

(1995) presents a review of ninety-four variations and emphasizes that communities can be

differentiated in many ways as they represent various aspects depending on the person, the

time, and the location. In this study, communities are understood as individuals united in a

social group which are connected by living and socializing in the same physical location and

sharing similar standards, and creating organizations (Cnaan et al, 2007). Cnaan et al. (2007)

further state that “communities are affected, and in a sense defined by, forces that affect

community members and their spaces” (p. 2). These forces are displayed as external powers

coming from the government, corporation, or single individuals entering the physical location

and thereby changing and creating new dynamics within the community (Cnaan et al., 2007).

Thus, corporate strategies like M&As can be seen as an external factor creating changes,

which may influence the community’s well-being.

Given the obtained information on M&A's original goal to increase the operating

efficiency, M&As typically involve a rationalization of operations, which often results in

different implications, one of them being employee layoffs (Lehto & Böckerman, 2008;

O'Shaughnessy & Flanagan, 1998).

Several studies present evidence that employee-layoff are likely to occur after

acquisitions (e.g., (Lehto & Böckerman, 2008; Yaprak et al., 2018) and mergers, whereas

others present contradictory results (Budros, 1997, 2004; Wagar, 1997). However,

discrepancies in research findings could result from differences in methodology or samples

(e.g., cultural and legislative differences). Correspondingly, it is important to keep in mind

that multiple possible factors are leading to employee layoffs. Hence, O’Shaughnessy and

Flanagan (1998) found that when similar firms merge, forces are joined. This allows the

reduction of duplication and overlap within the workforce and thereby eliminates costs to

realize operational synergies. Moreover, the literature suggests that M&As financed with

debts are more likely to lead to employee layoffs to cut costs and cover the consequent debt

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payments (O’Shaughnessy & Flanagan, 1998). Beyond that, organizational restructuring after

an M&A involves a cultural change within the new firm. Consequently, some employees are

not suitable, or cannot adapt to the culture of the new company (Society for Human Resource

Management Foundation, 2010), leading to layoffs. Additionally, as previously noted,

managers, especially firms with poor performances, might also use downsizing to reduce

costs to protect their shareholder’s interest in wealth maximization (Morck et al., 1989). Thus,

in conclusion, there is sufficient reason to believe that employee layoffs may follow from

M&As.

Whilst downsizing, after an M&A, might create financial benefits for the firm’s

shareholders, other stakeholders like employees and the community can be affected

negatively.

As a local community is portrayed by individuals connected by living and socializing at the

same physical location and creating an organization (Cnaan et al., 2007) it can be supposed

that employees are included in the group of the local community. It seems logical, therefore,

to expect that due to the employee’s layoffs, unemployment will increase for the individuals

within the local community creating financial problems and thereby negatively impacting the

community’s well-being (Hazan, 2020).

Additionally, as obtained before, policies like CSR oblige companies to create value

for their stakeholders like communities. Research identifies that companies can play an

essential role in creating financial value for a community by implementing projects and

investing in the region (Alvarado et al., 2017; Iamsiraroj, 2016). These investments and

donations can enhance a positive impact on the well-being of communities. However,

corporate strategies like M&As lead to organizational changes, which may imply

organisational restructuring or changing management’s priority and thereby their commitment

towards CSR duties for the local community. This may not only cause employees to lose their

jobs but also missing investments, donations, or support of social projects creating a

significant negative impact on the local community (Hazan, 2020).

As previously shown, the corporation's predominant focus on shareholder wealth

maximization also takes part in influencing these operational decisions due to favoring

shareholder's interests rather than those of all stakeholders. According to Benites-Lazaro and

Mello-Théry’s (2018) research on local communities’ participation in clean development

mechanisms (CDM), many projects have an opposite impact on local communities than they

initially aimed. The study on 625 projects shows that the project representatives still focus

more strongly on the financial aspects of the project than focusing on stakeholders and their

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participation in these processes (Benites-Lazaro et al., 2018; Lazaro & Gremaud, 2017; ). The

study shows that processes to enhance the role of the local community is based mainly on

operational reason (Benites-Lazaro et al., 2018) supporting critics blaming companies for

causing social and environmental problems at the expense of local communities while

increasing their shareholders' wealth at the same time (Clark & North, 2006; Frynas, 2005;

Idemudia, 2009). This shows that the practical implication of stakeholder theory is still not

viable due to the company’s significant focus on shareholder wealth maximization. Therefore,

business practices fail to protect stakeholders, like local communities, and beyond that, to

create positive and beneficial well-being.

Given the previous evaluation of employee layoffs, disinvestments, and missing

engagement with stakeholders, the potential impact of corporate strategies like M&As can be

predicted as harmful and negative towards the community’s well-being. Considering this, the

first hypothesis presenting the basis of this research is:

H1: Merger and Acquisitions reduce local community’s well-being

Consequences of Changes in the Top Management There are also other possible factors that have an influence on the organizational

structure after an M&A. Due to a transition of the ownership structure, the new firms’

executives can decide to relocate the old management team to another location or replace

them with a new management team. Consequently, the new management team, entering from

the outside, can change the prevailing connection and previously described ‘agreements’

between the prior management and the community due to its different managerial approach.

Therefore, depending on the new managerial behavior negative or positive implications for

stakeholders, in particular, the local community can emerge.

As obtained before, shareholder wealth maximization is still an essential priority for

the management and therefore predominantly influencing strategic decisions. However, as

previously noted, societal demands have emerged challenging companies to adopt responsible

and ethical behavior within their organizations. Additionally, as aforementioned, communities

have the power to contribute by creating financial capital. Despite this, the community’s

contribution can also include implementing social projects, donating, and providing support

through voluntary work. These implications will not only create a positive image of the

company increasing their popularity for customers, but also have a significant positive impact

on the community’s well-being.

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Nevertheless, to gain this positive impact, scholars have identified that “managers

need to behave differently: they need to put the policies and good intentions into practice”

(Burnes, 2017, p. 495). Throughout the examination of the role of managers, Burnes (2017)

concludes that the management of an organization can profoundly influence both its company

and the society, among them the local community. Therefore, it can be noted that a

company’s management has not only the responsibility but more importantly the initial power

to implement business practices, which create an impact on the well-being of stakeholders

like communities. Hence, changes in the management team can lead to changes in the

managerial behavior, which can impact the community’s well-being significantly, particularly

following an M&A. Due to M&As initial goal to create growth and success for the companies

(Sherman, 2011) the new management may prefer business practices that enable eliminating

costs or additional workforces to maximize their shareholder's wealth. Thus, in conclusion, it

can be assumed that the new management will change the managerial commitments and adapt

different, less beneficial practices, that may be harmful to the local community.

Contributing to this, social identity theory (Ashforth & Mael, 1989; Kramer, 1991)

identifies that membership in a group, for example, in an organization or community

contributes to some part of the identity of every individual. Thereby, ‘organizational identity’

describes individuals association of distinctive aspects with the members in the group (Hogg

& Terry, 2000). This implies that it is common for individuals, including managers to create a

significant connection and relationship within a certain group. Correspondingly, the research

presents that individuals are more likely to protect their community when it is meaningful to

them (Brehm et al, 2013). Hence, this attachment becomes stronger with an individual’s

perception of their social identity, making them care about the community even more.

Therefore, it can be assumed that strategies like M&A impact these organizational identities

and their commitments towards the local community as new management may abandon the

past identity of the organization (Myeong-Gu & Hill, 2005). This can result in changes in the

managerial behaviors leading to neglecting prior social projects, voluntary engagement, and

financial investments. Consequently, the community’s well-being will be negatively affected.

In addition to neglecting past priorities and commitments, the new management can imply

different priorities and adapt new ways to manage the organization. For example, concerning

increasing operational efficiency, management can decide to use outsourcing, which will

eliminate in-house positions. While the management can register benefits from cutting costs,

the members of the local communities will be negatively affected by the resulting layoffs and

financial distress.

15

Thus, in conclusion, a change from old to new management strategies can have a

significant impact on the local community. This can be assumed as prior managers have

developed an organizational identity and thereby evolved a certain commitment and

responsibility towards the local community. In comparison, the new management has newly

entered the ‘membership’ and therefore, does not feel any, or just little, obligations towards

the group of individuals creating the local community. Also, due to different interests,

particularly following an M&A, the company’s management is more likely to introduce

business practices, which will impact the community’s well-being rather negatively.

Consequently, this study proposes, as obtained in the literature, that with a transition

of the management team the connection towards the community will decrease, which

proposes the following hypothesis:

H2: A change of the management team resulting from a Merger and Acquisition will

increase the negative impact on the local community’s well being

Methodology

Research Design The hypotheses were tested with a quantitative research design using a panel data set.

The study purpose is to extend the M&A literature by researching the possible impact of

M&As on the well-being of the local community. Additionally, the research aims to gain

information on a possible effect of additional changes, in particular a change within the

management team, on the community’s well-being. Thereby, community well-being is

measured mainly in three ways: 1) the value of financial donations, as well as voluntary work,

and product donations made by a company 2) the change of the number of employees and 3)

the firms’ involvement in CSR policies and, correspondingly, the rating of their performance.

This set of dependent variables allows to generate a broader perspective on possible

influential effects following an M&A and may support to ensure an informative analysis.

To accomplish an objectively accurate analysis, this study carefully designed a valid

sample under controlled conditions using propensity score matching to enable a more reliable

research. Following this process, the hypotheses were tested by a linear regression analysis.

Therefore, companies involved in an M&A have been compared with matching companies

that do not involve in an M&A in terms of the dependent variables. All data for the variable at

interest have been obtained from various databases, namely, Zephyr, Orbis, and Thomson

Reuter Eikon (Eikon).

16

The following segment will present the specific sampling process of this study.

Additionally, data generation and measurement will be discussed. Lastly, the statistical

analysis of the study will be introduced.

Sample and Data The analysis started with an initial sample of around 25.000 companies located in the

US and Europe. While this would have provided a valuable starting point due to its large

sample size, it should be noted that differences in terms of company characteristics were not

considered. Therefore, we performed a sample selecting procedure to ensure that the

researched sample consists of a comparable set of firms providing a reliable basis for this

analysis. First, data concerning CSR behaviors were obtained for a period of 10 years from

the Eikon database. Eikon’s database provides a broad range of accessible data on various

fields of research. There, crucial for this study, a selection of social variables in form of

ratings, scores or financial values can be obtained from this database. Additionally,

information on specific community variables can be generated for every individual firm. For

instance, firm’s involvement in CSR-related policies and activities, their contributions to

society through donation or investments, and other aspects in terms of the workforce can be

observed in relation to a community.

After the obtained data on firms’ CSR scores was added to the initial sample, a

majority of companies were eliminated due to missing data. Consequently, adjustments were

made which resulted in a smaller sample of approximately 800 firms. Following the process,

data on M&A activities was obtained from Zephyr’s database. Zephyr is a crucial database for

information on past and current M&A deals. Thereby, data on deal types, dates, status or

values of deal are presented. Currently, Zephyr provides data from 2011-2019.

The new additional information on M&A activities were added to the latest sample,

which consequently, constructed a new sample of approximately 240 firms. This sample

contained both firms which completed an M&A and firms which have not been involved in an

M&A or have withdrawn from a deal. Adding to this sample, data identifying the

characteristics of the companies were obtained from the Orbis database and operationalized

by their size (Number of Employees), performance (Return of Equity- ROE), profit (Total

Asset) and CSR behavior. Orbis and Zephyr belong to the same database, therefore Orbis adds

a broader set of information on firm characteristics.

Lastly, by using the propensity score matching, a final sample was created in

consideration of the previously obtained data on the firm’s characteristics and their

17

involvement in M&As. As a result, matches between ‘M&A-firms’ and ‘non-M&A firms’, in

this study named panel A and panel B, were generated. Thus, in total, 80 US-firms have been

considered as the final sample for analysis. Thereby, 40 firms have been involved in an M&A

process, whereas 40 firms have not. Additionally, the sample was adjusted in terms of the

geographical location of the industry. Thereby, the study set a focus on US-firms in order to

eliminate disturbing factors created due to cultural differences. Moreover, it is important to

mention that the final sample includes firms of different industry sectors. This can be

explained by two reasons: 1) When implementing the firms industry sector as a control

variable, the final sample of this study would have been too small and therefore not suitable

for the purpose of this study 2) this research aims to identify possible influential effects of

M&As in different industries to gain a better perspective of this strategies impact.

For the empirical analysis, the sample period from 2010-2019 was selected as the

majority of M&A deals took place between 2010 and 2015. The data on the community well-

being was also obtained from the Eikon database.

Measures

As shown in the previous segment, the final sample included both firms that were

involved (panel A) and firms that were not involved in M&As (panel B). Thus, due to the

matching sample procedure, firms in panel A and B have been matched, and thereby a firm in

panel A has been assigned to a similar firm in panel B. This ensured the study to implement

the appropriate data of the firm specific sample period relating to the deal date.

As aforementioned, the date of the M&A deal was obtained through the Orbis

database, which allowed the study to acquire the corresponding data for the dependent

variables, moderator variable and confounding variables three years after the operation took

place. Additionally, this data of the variable (3 years after the M&A) was adjusted by taking

the mean for each firm and each variable. As the exact matches between the ‘M&A-firms’

(panel A) and the ‘non-M&A firms’ (panel B) were generated, the study was able to run

through the same data collection and measurement procedure for both panels. By presenting

the data three years after the M&A through the mean, potential disturbing elements, such as

missing data were able to be migrated ensuring a valid testing of the hypotheses.

To deepen the understanding, the following section presents detailed information on

the individual dependent variables in their assigned groups.

18

Community well-being variables – dependent variable. As explained in the research

design, multiple dependent variables were used to measure the impact of M&As on the local

community and its well-being. As aforementioned in the literature segment, various studies

suggest that community well-being is influenced by different aspects. This illustrates that it is

crucial to generate multiple different observations in order to gain a more reliable view on the

possible influence of M&As on the local community’s well-being. This study, therefore,

measures community well-being through a diverse set of variables, which can be assigned to

three different groups. All relevant data for the measurements of the community well-being

variable of this analysis have been obtained from the Eikon database.

The first group contains the variables Donation total and Total donation in revenue.

Both variables represent the amount of donations contributed by the firm. However, there is a

difference as Total donation to revenue describes the amount of all donations in relation to the

revenue in million, whereas Donation total measures the overall donations made by a

company. This includes in addition to the financial contribution also donations made by its

foundations or trusts such as product donations, sponsoring or employee volunteer time costs.

The second group includes the variables Delta Employee and Announce Layoffs to

Total Employees Score. Delta Employee measures the change in the number of employees for

each firm. Thereby, as aforementioned, data from three years after the M&A took place was

obtained both for panel A and B. The number of employees in the third year after the M&A

was deducted from the first year after the M&A, presenting the change in the number after

three years. Additionally, the obtained data of the variable Announce Layoffs to Total

Employees Score has been generated from the Eikon Database. It measured the total number

of announced companies lay-offs divided by the total number of employees.

These dependent variables present the impact of M&As on the local community by

analyzing the change in the workforce of firms involved in M&As compared to firms that

have not gone through the same operation as it is an essential outcome suggested in various

research papers (e.g., Lehto & Böckerman, 2008; Yaprak et al., 2018; Wagar, 1997).

Lastly, the third group includes multiple CSR- and Community Scores highlighting

firms’ ratings on their performances and business activities. As suggested by multiple

researchers, companies’ involvement in CSR-related activities will have an impact on the

stakeholders like the local community. Therefore, this analysis uses CSR-related variables to

display companies’ involvement, commitment and actual performance towards certain

policies, which are intended to create and monitor responsible corporate behavior. Here,

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Social Pillar Score, Community Sore, Corporate Responsibility Award Score, Policy

Community Involvement Score were selected as representatives and are measured in

percentages ranging between 0 and 100. Further details on the measurement can be found in

Appendix A, the Social Pillar Score measures management practices considering firms

capacity to generate loyalty and trust with its employees, customers, and society. The variable

thereby reflects a company's reputation. The Community Score measures the firm's

commitment in respecting business ethics by protecting public health and acting according to

suggestions of CSR policies. Moreover, the Corporate Responsibility Award Score

determines whether companies’ performance has a positive impact in order to receive an

award for its social, ethical, community, and environmental activities. The Policy Community

Involvement Score describes companies’ involvement in policies that support a positive

corporate citizenship. Thereby, involvement in the community is represented and measured by

donations, volunteering, community investments and additionally a firm’s involvement in

CSR programs supporting education, health, and the environment of the community.

Merger and Acquisition- independent variable. The aim of this study is to research

the impact of M&As on the community’s well-being. Therefore, data was obtained reporting

on companies’ involvement with M&As. Thus, the dummy variable M&A identifies whether

a particular firm was involved or not involved in an M&A. Accordingly, the variable takes on

a value of 1 (panel A) when the company was involved with an M&A and 0 (panel B) if not.

When gathering data, the study has predominantly focused on firms with deals between 2010-

2015, as both Zephyr and Orbis databases provide data exclusively of this time period.

Additionally, the study included mainly Merger and Acquisitions as representative deal types

of M&As. For instance, joint ventures have not been considered and eliminated from the

sample. While this study does intend to differentiate between Mergers and Acquisition, it is

important to keep in mind that firms involved in acquisitions are predominantly represented in

this analysis due to its more common occurrence in the used databases.

Change in management - moderator variable. In order to test the second hypothesis,

the study obtained the variable Management Departure from the Eikon Database in the

sample period of 2010-2019. Thereby, Management Departure presents whether a key

member from the management team has announced a voluntary departure (other than

retirement) or has been ousted. Thereby, firms that have experienced a change in the

management team have been coded with 1 (panel C) and firms in which no change in

20

management took place were coded with 0 (panel D). While this study does not intend to

include the reason for a departure in the analysis, yet it is essential to keep this in mind when

observing the results.

Firms’ confounding variables. The study has previously determined confounding

variables to construct a matching sample and additionally, ensure the internal validity for the

analysis. Thereby, variables such as the Total Asset, ROE and the Number of Employees have

been obtained from the Zephyr and Orbis databases. Total Asset determines a firm’s total

amount of economic value owned by the company. ROE measures the financial performance

of a firm by calculating net income in relation to shareholders’ equity. Number of Employees

report, as its name states, the number of employees in a firm operationalizing the workforce of

a company. The variables were measured by taking their mean for every individual company.

As previously elaborated, the mean of the variables was used in the analysis.

Statistical Analysis

In order to create a balanced sample of companies with and without M&As, propensity

score matching was used. Propensity score matching is a statistical matching procedure used

to construct a sample by matching, in this case, a firm with an M&A (M&A=1) with firms

without an M&A (M&A=0) due to similar obtained characteristics. This way, bias can be

reduced. The sample matching was based on the following variables: Total Assets, ROE and

the Number of Employees, which are described above. Thereby, the mean of these variables

was determined and used. As a result, the matching procedure yields a final dataset containing

80 matched companies.

To test the hypotheses, multiple linear regressions were performed on the matched

sample. The following outcome variables were set: Donation Total, Total Donation in

Revenue, Announce Layoffs to Total Employees Score, Delta Employee, Policy Community

Involvement Score, Corporate Responsibility Award Score, Social Pillar Score and

Community Score.

The models were mutually adjusted for the proposed confounders (Total Asset, ROE and

Number of Employees). All analyses were performed using Stata 16 (Stata Corporation,

College Station, Texas) and considered associations as statistically significant at an alpha

level of < 0.1 due to their relatively small sample.

21

Results

Descriptive Statistics A summary statistic for the variables used in our analysis in panel A and B are

presented in Table 1. The regression result presenting the findings for the first and second

hypothesis-testing are displayed in Table 2 and Table 3. All 8 models have been tested with

the same structure, including the independent variable (M&A dummy) and the confounding

variables (Total Asset, ROE and Number or Employees). When looking at Table 1, only

limited interesting differences between the variables in panel A and B can be observed.

Thereby, Corporate Responsibility Award Score (Model 6) is measured with a mean of 39.59

in panel B, representing the companies without an M&A. In contrast, the same variable is

considered 20 points higher in panel A. At the same time the statistical summary shows quite

similar means in models 5, 7, and 8, representing additional CSR-related variables. Also,

model 4 highlights a difference between the panels. It appears that firms involved in M&As

have increased the number of employees during the sample period of three years after the

operation took place, whereas the companies without an M&A show a decrease in the number

of employees in the same period of time. Thus, even when it has to be noted that no

significant difference can be seen in relation to the magnitude of the difference, but this might

present a conflicting change between the two panels. Moreover, panel B counts a three times

larger mean in model 1 compared to panel A, showing a significant difference concerning

firms financial and additional donation. Thus, in conclusion, the statistical summary of the

means and statistical deviation of this studies’ panel sets A and B appear to be similar

showing no major significant differences.

22

Table 1

Summary statistics (Panel A (M&A=1): n=40 & Panel B (M&A=0): n=40).

Model Variables Mean Std. Dev. Min Max 1 Donation Total 2.11e+07 5,44e+07 0 2.70e+08 2 Total Donation in Revenue 763.5225 1332.59 0 6476.75 3 Announce Layoffs to Total Employees Score 0.45 1.14. 0 5.74 4 Delta Employee 2146.6 7161.38 -11000 25200 5 Policy Community Involvement Score 55.87 15.23 0 73.75 6 Corporate Responsibility Award Score 59.04 38.18 0 88.53 7 Social Pillar Score 54.60 18.63 0 91.57 8 Community Score 73.05 22.63 0 99.71 9 Number of Employee 36802 46748.54 36 241130 10 Total asset 7.52e+07 1.73e+08 469457 8.37e+08 11 ROE (%) 19.35 14.05. -6.647 58.947 Panel A: M&A=1

Model Variables Mean Std. Dev. Min Max 1 Donation Total 8.61e+07 4.75e+08 0 3.01e+099 2 Total Donation in Revenue 3852.50 15834.34 0 99356.25 3 Announce Layoffs to Total Employees Score 1.24 2.66. 0 12.33 4 Delta Employee -896.55 6842.60 -37000 9500 5 Policy Community Involvement Score 55.30 16.55 0 72.61 6 Corporate Responsibility Award Score 39.59 457.12 0 79.21 7 Social Pillar Score 53.75 18.56 12.39 85.37 8 Community Score 75.62 17.00 29.80 99.39 9 Number of Employee 27806 29730.08 408.44 127177.2 10 Total asset 4.46e+07 1.29e+08 1774433 8.18e+08 11 ROE (%) 26.71 43.56 -4.28 267.67 Panel B: M&A=0

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Table 2

Regression results of models 1-8 for Panel A (M&A=1) and Panel B (M&A=0); Testing Hypothesis 1.

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

VARIABLES Donation Total

Total Donation in Revenue

Announce Layoffs To Total Employees Score

Delta Employee

Social Pillar Score

Community Score

Corporate Responsibility Award Score

Policy Community Involvement Score

M&A (IV) -8.452e+07 -3545 -.802* 2804* -1.174 -4.015 -5.402 .475

(8.829e+07) (2938) (.476) (1,478) (3.995) (4.307) (8.484) (3.628)

ROE (%) -791,915 -25.37 -.00264 -10.89 -.0450 .0762** .129 .0574

(956,082) (30.63) (.00483) (20.97) (.0488) (.0354) (.0825) (.0413)

Total asset -.0738 -4.93e-06 -3.85e-10 -9.41e-06* 2.53e-08*** 3.05e-08*** 3.86e-08*** 5.31e-09*

(.168) (5.56e-06) (4.38e-10) (4.79e-06) (7.05e-09) (5.58e-09) (9.25e-09) (3.13e-09) Number of Employee 1789 .0470 1.15e-06 .0501** .000103* .000119** .000242** 3.96e-05

(1429) (.0481) (3.81e-06) (.0198) (5.26e-05) (5.82e-05) (9.82e-05) (3.63e-05)

Constant 5.942e+07 3405 1.292** -1,617* 50.89*** 68.82*** 42.19*** 52.40***

(6.736e+07) (2256) (.553) (923.0) (3.936) (3.661) (7.681) (4.009)

Observations 80 80 80 80 80 80 80 80

R-squared .055 .048 .039 .126 .133 .161 .120 .029

Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

24

Table 3 Regression results of model 1-8 for Panel C (Change in management=1); Testing Hypothesis 2.

*(This table continuous on the next page)

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

VARIABLES Donation Total

Total Donation in Revenue

Announce Layoffs To Total Employees Score Delta Employee

Social Pillar Score

Community Score

Corporate Responsibility Award Score

Policy Community Involvement Score

M&A (IV) -7062776 -117.5 -.69 5169.87 1.72 -1.92 -41.51** -.19

(8753140) (542.82) (.92) (4445.40) (8.74) (7.96) (8.484) (4.10)

ROE (%) 286297.2 21.03 .01 215.31 .23 .176 .129 -.00

(383143.5) (25.14) (.03) (108.46) (.19) (.53) (.0825) (.10)*

Total asset 1.12 3.00e-0. 3.11e-11. 8.21e-06 3.07e-08 2.97e-08 3.86e-08*** 4.50e-09

(.01) (5.64e-07) (1.46e-09) (6.79e-06) (1.01e-08) (.03)** (9.25e-09) (4.93e-09) Number of Employee -206.49 -.01 7.25e-06 .04 -.00 -.00 .000242** -.00

(106.4) (.01)*** (.00)*** (.06)* (.00)*** (.55) (9.82e-05) (.00)***

Constant 7710160 347.38 .72 -9538.27 50.18 74.87 42.19*** 61.50

(7944576) (422.14) (.80) (5466.97) (11.35) (.00) (7.681) (5.41)

Observations 16 16 16 16 16 16 16 16

R-squared .69 .27 .12 .37 .18 .17 .37 .09

Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

25

Table 3 Regression results of model 1-8 for Panel D (Change in management=0). Testing Hypothesis 2.

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

VARIABLES Donation Total

Total Donation in Revenue

Announce Layoffs To Total Employees Score

Delta Employee

Social Pillar Score

Community Score

Corporate Responsibility Award Score

Policy Community Involvement Score

M&A (IV) -1.15e+08 -4580.25 -.70 3459.18 -1.19 -3.62 4.86 1.79

(1.17e+08) (3905.41 (.57) (1735.80) (4.56) (4.94) (10.44) (4.31)

ROE (%) -708295.2 -23.56 -.00 -23.24 -.07 .06 .12 .05

(860520.5) (27.95) (.00)*** (26.15) (.03)** (.03)** (.08)* (.04)**

Total asset -.08 -5.61e-06 -5.82e-10 -.00 2.63e-08 3.20e-08 3.62e-08 2.19e-09

(.18) (5.94e-06) (5.94e-10) (4.38e-06) (1.15e-08) (7.67e-09) (1.44e-08) (4.69e-09) Number of Employee

2444.60 .07 -1.30e-06 .05 -.00 .00 .00 .00

(2001.17) (.07)* (2.72e-06) (.02)** (.00)*** (.00)*** (.00)*** (.00)***

Constant 6.44e+07 3747.65 1.34 -1269.26 50.95 68.82 38.26 51.94

(7.66e+07) (2584.68) (.64) (915.37) (4.29) (4.08) (8.30) (4.47)

Observations 62 62 62 62 62 62 62 62

R-squared .07 .06 .03 .17 .16 .18 .12 .03

Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

23

Hypotheses Testing

Table 2 and 3 report the results from the multiple-regression analysis of panel A and

B. Thereby, the different models have all been tested independently in relation to their

involvement in M&As. Model 1-8 represents the results for the dependent variables, and

ROE, Total Asset and Number of Employee represent the confounding variables. A few significant results can be found in relation to the confounding

variables. In particular, model 5, 6 and 7 show a significant result for the variable Total

Asset. Further examination presents the following result for testing the Hypotheses: Hypothesis 1. The results present no support for H1, which anticipates that there is no

significant empirical evidence identifying that M&As may create a negative impact for the

well-being of a local community.

While the overall result does not show a strong enough significance to support the hypothesis

1, model 4 shows a slight significance when tested at the 10% level. Here, companies

involved with an M&A count an increase in their employees in the three years after the

operation took place (ß = 2803, p = .062). Beyond that, no significance can be observed.

Hypothesis 2. The results present no support for H2, which predicted that it is likely

that a change in the management team, following an M&A may affect the local community’s

well-being in a negative way. While, similar to the first hypothesis, the overall results do not

show a significant outcome in order to support the hypothesis 2, however, model 7 reports a

slight significance when a change in the management team took place (ß = -41.51, p = .04).

Hence, a change in the management team following a M&A may have a possible negative

influence on the CSR performance of a firm involved in an M&A.

Discussion

This study finds that stakeholders like local communities are not considered strongly

enough in terms of the firm's strategic business practices (Benites-Lazaro & Mello-Théry,

2018). This is predominantly explained by companies’ prioritization of shareholder wealth

maximization (Griffin, 2018). However, as previously outlined, various scholars have

highlighted the importance of stakeholder thinking and the benefits of creating a positive

relationship with all stakeholders, in particular, the local community (Parmar et al., 2010;

Porter & Kramer, 2011, Rahdari, 2016). Therefore, drawing on stakeholder thinking

(Freeman, 1984) this study has identified two predictions.

27

First, this research studied that M&As are likely to negatively impact the well-being of

local communities. In line with this hypothesis, various scholars argue that M&As may affect

local communities as, for instance, downsizing effects are likely to occur in cases of

acquisitions (e.g., Lehto & Böckerman, 2008; Yaprak et al., 2018), which will result in an

increase of the unemployment and consequently, create financial problems for the individuals

in a local community. Second, this thesis intended to research the moderation effect of a

change in the management team following an M&A. Accordingly, this study hypothesized

that a change in the management is likely to negatively impact the well-being of the local

community.

To ensure a reliable analysis, the study first used the propensity score matching to control for

firm-specific differences by creating a matching sample. Afterwards, the hypotheses were

tested using multiple regression analyses which allowed to study the impact of M&As on

various dependent variables operationalizing the community well-being. These variables

represented data on firm’s donation behavior, the change of the workforce, and the

involvement and commitment towards CSR-related policies. Proceeding in this way, the result

did not meet the expectations of this study as no significant differences between panel A and

B were found. Hence, the results did not support the hypotheses, implying that no empirical

evidence of a possible association between M&As and the local community can be generated.

However, even when the entirety of the results does not support the hypotheses, the analysis

identifies a few interesting differences between panel A and B which, measured at a 10%

level, show a marginal significance (p = .06; p = .04) worth addressing in this section in

contribution to the implications.

Thus, the results in table 2 present a marginal significance in model 4 (Delta

Employee) and, therefore support previous findings presenting a possible relationship between

M&As and the workforce of a company (e.g., Budros 1997, 2004; Wagar, 1997; Morck et al.,

1989). However, the measurements in this study contradict with the arguments claiming that

changes in employee numbers indicate employee-layoffs following acquisitions (Lehto &

Böckerman, 2008; Yaprak et al., 2018). This contradictory result can be seen as panel A

shows an increase rather (ß = 2803) than a decrease in the number of the employees compared

to panel B. Hence, the result of this analysis demonstrates that companies involved with

M&As may record increasing number of employees, when measured after a period of three

years, compared to firms not involved in the same operation. The results of this analysis may

support Cooper et al. (2012) findings, proposing that companies involved in the process of

manufacturing are not likely to be affected by downsizing. This may be a possible explanation

28

for this result, as the majority of the represented firms in this study’s sample tend to be

involved with production and manufacturing.

Additionally, the results of the moderation effect present also a small significance (p =

.04) due to different measures between panel A and B in model 7 (Corporate Responsibility

Award Score). Although the entirety of the dependent variables shows no significant results,

supporting the second hypothesis of this study, the marginal significance found in model 7

can be interpreted as an indication of a possible relationship between a firm's CSR

performance and its managerial behavior. The results show that companies involved in M&As

report a comparatively negative change (ß= -41.51) when members of the old management

team are replaced with new members. This result helps to support the argument of various

scholars (Hogg & Terry, 2000, Brehm et al, 2013, Myeong-Gu & Hill, 2005), claiming that

new members may not show the same commitment through their managerial decisions and

behavior as they feel not connected to the local community.

Finally, the study found an interesting significant result concerning the confounder

variable Total Asset in relation to multiple dependent variables, particularly to model 5, 6 and

7. This finding might demonstrate an association between firms’ involvement in CSR-related

policies and their value of total assets. As a discussion of this finding would be out of scope

for this thesis, this provides an interesting incentive for future research.

Conclusions & Implications

As the majority of the results do not report a significant effect, the study consequently

determines that none of the proposed hypotheses can be supported in this analysis. However,

independent from the reported measurements, a contribution to the theoretical literature is

made as this study conducted and contributes valuable new insights to the M&A literature. As

aforementioned, a review of the literature has identified a wide gap in the M&A literature on

social aspects which consequently limits to gain an exemplary model for potential future

studies on M&As and its potential influential effect. Therefore, this study implements a

foundation to build on in future study and encourages researchers to continuously study

corporate strategies like M&As and their impact on different stakeholders. Further details for

future research will be presented in the next segment. Adding to that, it can be observed that

the majority of literature fails to discuss the role of local communities in M&As in a more

detailed sense. Hence, this study further opens the discussions on the crucial role of local

communities as representees of the overall society in this economic world. For instance, when

reviewing Griffin’s (2018) research it can be seen that during the study a predominant focus is

29

set on employees and customers rather than local communities. This is not a rare finding

identifying the need for theoretical contribution, particularly on the local communities. Thus,

in conclusion this study is implicated as an addition to social M&A literature on an essential

social group – local communities.

Moreover, the interesting differences found in the results, may still implicate a

possible relationship between M&As and well-being of local communities. In reference to the

discussions in the previous segment, it can be argued that even when the study presents

marginal significant results for only a few individual variables, it can be assumed that results

on employment changes may represent a possible influence of M&As on local communities.

Thereby, it can be noted that even when the results of his study are not in line with findings

displaying a downsizing effect (Morck et al., 1989; Yaprak et al. ,2018; O'Shaughnessy &

Flanagan, 1998), they can be seen supportive of other studies suggesting that M&As do not

necessarily create downsizing (Budros, 1997, 2004; Wagar, 1997), and therefore harmful

effects for the community. In terms of the managerial implications, this study recommends

managers to consider the form of their strategic M&A decisions as it can be seen that different

approaches in mergers or acquisitions, for instance vertical merge or hostile acquisition, are

found to have resulted in contradictory effects (Cooper et al., 2012).

Additionally, reflecting on the difference shown in model 7, when a moderation effect

is also implied in the testing, it can be stated that even the marginal significance of this result

may indicate a possible association between the managerial behavior and companies’

commitment and involvement in CSR policies. Thus, this study may open new debates

specifically on the possible connection of specific CSR policies and managerial performance.

However, as model 7 only shows a managerial significant result as a reaction to the change, it

can be suggested that not all CSR policies have the same effect and therefore, the theoretical

implication of the possible findings suggests the need for a deeper understanding and analysis

of CSR policies. Nevertheless, beyond that managerial implications might recommend

corporations to not only comply to these policies for reputation purposes, but to gain

understanding on their difference to imply CSR policies that fit to the context of the company

in order to create real benefits for society (Porter & Kramer, 2011).

Also, the results of the analysis are a contribution to both the stakeholder theory and

the social identity theory as the findings present possible relationships creating new and

supporting presented assumptions of these theories. For instance, the testing of the hypothesis

1 shows an association between a change of employees, representing the well-being of a local

community, and M&A activities. This supports the stakeholder paradigm within the

30

shareholder-stakeholder debate by presenting how stakeholders like the local community are

affected by an organizational decision. Thereby the need to create adequate relationships

between stakeholders and company can been demonstrated. On the same time, the results of

this thesis contribute a critical review on the stakeholder theory, especially in its practical

implication in form of CSR activities. As CSR policies aim to implicate stakeholder thinking

in corporate activities, the thesis presents flaws in the stakeholder theory. This can be seen

when testing hypothesis 2. As aforementioned, the results show a significance and a decrease

of the CSR performance for only one CSR variable following a change in the management

after an M&A, whereas the others showed no interesting change. The differences may create

the assumption of the impact of managerial behaviors on the CSR performance, but beyond

that CSR policies may be argued to be not representing stakeholder thinking in an adequate

way, which is in line with critics of Porter and Kramer (2011). Therefore, discussion on the

practical part of stakeholder theory may emerge following this thesis to investigate the real

value of CSR policies for stakeholders like the local community.

Additionally, the results may present a connection between the managerial behavior and the

identity an individual creates in an organization. This supports the potential influential impact

of social identity theory on strategies like M&As and presents its important role in corporate

decisions. Therefore, besides identifying a possible connection between managerial behaviors

and the social identity theory for theoretical analysis of strategies, these findings practical

contribution states that when an M&A is implemented in a firm it is important to adequately

analyze the intention of the management to create a beneficial change for the society and the

firm. As the theoretical review presented, the firm’s CSR behaviors plays an important role in

today’s economic market affecting costumer’s willingness to buy products or employees

desire to enter the company. Therefore, it is important for executives to acknowledge

theoretical contributions by, for example the social identity theory and to influence the

managerial behaviors in order to create overall benefits.

Thus, in conclusion, it can be stated that even when no significant empirical results can be

contributed, the study created valuable impact for future discussions and keeps the debate on-

going.

Limitations & Future Research

To enable researchers to continue the study on the impact of M&As on local

communities and contribute additional findings, it is crucial to critically reflect this study.

Therefore, in this segment the study aims to transparently review the outcome and suggest

31

recommendations for future research to generate valuable outcomes.

Several limitations of this study mainly due to methodology and sampling have to be

pointed out. As this study included a small number of firms in its analysis, it can be assumed

that the research was not able to reach its full potential. Therefore, it is recommended to

create a larger sample of investigated firms to increase the ability in generating a significant

result. Also, the study has set a predominant focus on firms in the US. This may help to

reduce bias as cultural differences are eliminated, at the same time a limited perspective is

given. Therefore, it can be assumed that the same study may show different outcomes when

conducted for firms in other countries. Thus, future research may create a more international

sample to provide future insight on possible effects in an international context. Additionally,

the sampling the period of time was limited on 3 years after the operation took place. In order

to see the developments on a long it can be recommended for future research to set a sampling

period for a longer period of time. Moreover, this study has shown that future research should

implement a broad set of control variables to create a more suitable basis in finding relations

contributing to the research. Especially, when implementing CSR scores this study

recommends applying control variables to generate a reliable result on the CSR performance.

Another important limitation seen in this and other research is the availability of

variables that operationalize the well-being of a community. Even though this study selected a

broad set of dependent variables to enable a more reliable view on possible influences it can

be determined that existing and accessible data on specific community variables are limited,

creating a predetermined selection. While it appears that Eikon has provided classified

variables, specifically for the community enabling future research in this field, however, the

reliability of existing variables needs to be discussed. According to Porter and Kramer (2011),

CSR scores do not portray the accurate value and performance of companies towards the

community. They justify their claims by stating that CSR policies predominantly focus on

philanthropy. They suggest that CSV (Created shared value) is a more appropriate way to

record firm’s behavior and performance as the connection between society and economic

progress is quantified. Studies by Rhodes et al. (2014) and Bertini et al. (2012) support these

findings and state that shared values focus on expanding available resources, which will then

be beneficial for the firm and also the community. These findings demonstrate that existing

CSR scores need to be critically reviewed when implemented in future research in order to

generate a truthful perspective on the performance ratings of companies towards local

communities.

32

In conclusion, the study investigated the possible impact of M&As on local

communities and conducted a quantitative analysis to contribute new theoretical and practical

implication to the current field or research. While new insights on possible associations

between M&As and the local community were presented, at the same time no significant

empirical evidence, in support of the predictions, was generated. Correspondingly, the study

presented possible explanations on why the results did not meet the expectations and thereby

contributed new insights to the current debate and, beyond that, created new discussions and

recommendations encouraging further research.

33

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Appendix A

Explanation on score measurement part 1 (Model 5-8)

Environmental, Social and Governance (ESG) Scores from Refinitiv (Thomson Eikon

Database) - April 2020

Explanation of Score:

The scores reported by the firm and have been verified before making them accessible for the

public. They are measurements of the performance of a firm in regard to their Environmental,

Social and Governance behaviors.

The measures are also considered in their comparability, impact, availability of data and

relevance within their industry, which varies depended on their industry group.

The ESG performance in reformulated in 10 categories to reflect on the firms ESG

performance, commitment and effectiveness. All information is publicly reported information.

Score Range / Grade and Description of Variables- Source Refinitiv

Score Range Grade Description (original wording)

0.0 < = score < = 0,083333 D- “D score indicates poor relative ESG

performance and insufficient degree of

transparency in reporting material ESG

data publicly.”

0,083333 < score < = 0,166666 D

0,166666 < score < = 0,250000 D+

0,250000 < score < = 0,333333 C- “C score indicates satisfactory relative

ESG performance and moderate degree

of transparency in reporting material

ESG data publicly.”

0,333333 < score < = 0,416666 C

0,416666 < score < = 0,500000 C+

0,500000 < score < = 0,583333 B- “B score indicates good relative ESG

performance and above average degree

of transparency in reporting material

ESG data publicly.”

0,583333 < score < = 0,666666 B

0,666666 < score < = 0,750000 B+

0,750000 < score < = 0,833333 A- “A score indicated excellent relative

ESG performance and high degree of

transparency in reporting material ESG

data publicly.”

0,833333 < score < = 0,916666 A

0,916666 < score < = 1 A+