The (mis)measurement of M&A performance—A systematic narrative literature review

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Summary

This paper seeks to further the understanding of the variety of meanings M&A scholars attach to the label “M&A performance” by providing an alternative way to interpret the claimed inconsistency of M&A research findings. While many scholars contend that the problem stems from the multiplicity of M&A performance measures, we believe the problem rests in trying to compare different measures as if they were measuring the same feature of the organization. Through our narrative review of empirical research we analyze factors shaping the M&A – as well as the organizational – performance measurement process. The conclusion is that it is not possible to talk about M&A performance as if it was a universal construct.

Highlights

► We provide an alternative understanding to M&A performance. ► Instead of understanding the inconsistent findings of M&A performance as a problem we suggest the problem lies in attempts to compare incomparable results. ► We conclude that it is not possible to talk about M&A performance as a universal construct.

Introduction

How do mergers and acquisitions (henceforth M&As) perform and what explains their performance? These are leading questions in much M&A research from the 1960s to the present. Many M&A scholars have performed meta-analyses (e.g., Datta et al., 1992, King et al., 2004) in order to answer these questions but the research findings are not consistent.

Scholars explain these inconsistencies in different ways. Some claim that each M&A is unique, and therefore the comparison of findings across typologies and settings is meaningless (Bower, 2001, Lubatkin, 1987). Others posit that yet unidentified variables would better explain variance in acquisition performance (King et al., 2004). Others observe that M&A scholars have shown a low concern for M&A performance construct validity—something that could hinder the level of confidence in the generalizability of research findings (Cording, Christman, & Weigelt, 2010). Still others state that the performance construct measurement deserves further attention and they offer suggestions to improve it (e.g., Lubatkin and Shrieves, 1986, Zollo and Meier, 2008). The common underlying belief is that M&A performance is something out there to capture; scholars only need to find better ways to do so. In this paper, we would like to challenge the dominant way M&A performance is understood and provide a different view to the perceived inconsistency of empirical M&A research. To do this, we will analyze the M&A performance research in light of an ongoing debate in organizational performance literature.

One way to understand organizational performance is as an umbrella construct. Umbrella constructs are defined by Hirsch and Levin (1999) as broad ambiguous concepts used to encompass and account for a diverse set of phenomena. The main trait of umbrella constructs is a lack of consensus among scholars about how to measure it. In a similar manner, M&A performance can also be conceived of as an umbrella construct and therefore is consequently just as ambiguous. Because of the ambiguity of the construct, scholars try to measure performance using many different indicators and measurement methods—an unavoidable outcome when a construct is ambiguous.

If M&A performance is understood as an umbrella construct, the view of M&A performance research portrayed in the literature assumes a different meaning. The problem with M&A performance research would then not be poor construct measurement, not the identification of new variables to explain and predict performance, and not the lack of consensus on how to measure M&A performance, as M&A scholars generally point out. Rather, the problem would be the lack of clarity in constructing the different measures (Suddaby, 2010), and a widespread tendency to compare incomparable results in a quest to find variables explaining the variance in performance.

In this article, we aim to answer the question “How do M&A scholars measure M&A performance?” in order to better understand what is it that M&A scholars label as M&A performance. To achieve this aim, we conduct a literature review of empirical M&A research in top-tier journals covering four decades. We do this in order to understand the meaning of M&A performance and its boundary conditions. We analyze what is measured (how performance is conceptualized and operationalized), where it is measured (the research setting), how it is measured (the measuring method), when it is measured (the time scale), and for whom (the unit of analysis) it is measured. The analysis of the M&A performance construct is also the means to unravel which factors scholars claim to shape the M&A performance construct measurement.

We intend to contribute to the M&A performance and the organizational performance literature in several ways. First, we want to shed new light on the current understanding of the M&A performance construct; second, we want to highlight what factors shape the performance measurement process; third, we want to discuss the relevance of much of current empirical M&A performance research.

The remainder of this paper is structured as follows. In the next section, we briefly describe the organizational performance measurement debate. In the third section, we describe the method for the study. We then present and discuss the results and their implications for the future of M&A studies. We conclude by discussing our findings in relation to publishing norms in the M&A field.

Section snippets

Measuring organizational performance

Organizational performance is a recurrent research focus in a variety of disciplines. From sociology and economics to strategy, it is being conceived as a benchmark to gauge the effectiveness of managerial decisions. In each of these academic fields, scholars have tried to come up with a universal and general measure for performance valid for all types of organizations (Meyer, 1994). Yet, in each of these fields, scholars have also failed to reach a consensus on what these general measures for

The study—a systematic narrative literature review

This article is a review with the aim of analyzing how management scholars measure M&A performance. The design of the study is of a systematic narrative character that draws on the works of Green, Johnson, and Adams (2006) and Huff (2008). Both texts offer classifications of different types of literature reviews. Huff (2008) provides a comprehensive analysis of the systematic review, which may take the form of a meta-analysis as well as of a meta-ethnography. While a meta-analysis is mainly

Results

The picture emerging from our findings depicts M&A performance as an ambiguous construct with a lack of consensus on how to measure it. Taken together, our findings show that M&A scholars measure different things in different settings, using broad or narrow definitions, relying on a wide array of indicators (169), each reflecting different time scales and units of analysis. Let us detail our findings below. Doing so, we will first account for the frequency of M&A performance being the dependent

Discussion: how to interpret our findings and where do we go from here?

Almost all quantitative studies in the sample use M&A performance as the dependent variable. This is a clear indication that M&A scholars consider performance as one of the most important gauges to assess the outcome of acquisition strategies. This focus on M&A performance as the dependent variable suggests that M&A scholars strive to find the ultimate independent, moderating, and mediating variable that can explain or predict performance in M&As.

There may be many reasons why performance is of

Epilogue: publishing M&A research

In this concluding section, we would like to focus on factors affecting the measurement process that cannot be accounted for quantitatively, factors that can be analyzed in a systematic narrative review but would have been left unnoticed through a meta-analysis.

Our findings show that the measurement process is not as neutral or mechanical as the conventional discourses found in methodology textbooks depict it (e.g., Zeller & Carmines, 1980). The measurement process, as it emerges from our

Acknowledgements

Many people contributed to the ideas expressed in this paper. We are indebted to Janne Tienari for his assistance throughout the revisions of this paper. We would also like to thank Hervé Corvellec, Charles Tackney, Andrew Van de Ven, Philippe Very, and the participants at an internal seminar at Copenhagen Business School, Department of Intercultural Communication and Management (the COGs) for their helpful comments on previous drafts of this work. Financial support from Italian Ministry of

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