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ScholarOne - Why Institutions Matter for M&A
  • hui wang
hui wang
Independent

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Abstract

Why and how do M&A overall destroy value? This study of two mergers and acquisitions (M&A) cases generates propositions exploring that question. The human capital entering the merged firm was shaped in congruence with pre-M&A institutional constraints (e.g., rules, incentives) and is institution specific. The human capital value is dependent on, not independent of, pre-M&A institutions. However, the combining of two firms likely alters the firm institutions and gives rise to the incongruence of institutions and the human capital. This incongruence precipitates the devaluation of the human capital, which causes post-M&A production loss. This study improves the firm-specific human capital theory by connecting institutions as the key attribute of a firm to human capital and thus explains human capital devaluation in M&A, in which workers mostly do not change firm. This study also highlights the practical importance of assessing a target’s institutional fit pre-transaction and avoiding unnecessary institutional changes post-transaction.
17 Jan 2024Submitted to Advance
03 Apr 2024Published in Advance