Acquisitions and Organizational Purpose
52 Pages Posted: 26 Mar 2021 Last revised: 21 Oct 2021
Date Written: October 21, 2021
This study explores the relationship between boundary decisions and the sense of purpose within firms. Using data from approximately 1.6 million employees and 831 acquisitions, we find that purpose is substantially weaker in companies in the three years following a transaction. This relationship is particularly pronounced when information asymmetry is high, specifically when disclosed rationales use non-specific language or represent unique industry combinations. Moreover, this weakened purpose has implications for the performance of the transaction. Unique transactions are met with outsized market returns upon announcement, consistent with market perception of the strategic value of uniqueness. However, they do not outperform over the long run. Only unique transactions that simultaneously sustain strong purpose ultimately outperform. Altogether, our evidence suggests a possible tension between strategic and motivational implications of firm boundaries: while firms benefit strategically from uniqueness, it may also erode the sense of purpose within firms, with implications for downstream performance.
Keywords: Mergers and Acquisitions, Corporate Purpose, Corporate Strategy
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