Despite Efficiencies, Mergers and Acquisitions Reduce Firm Value by Hurting Customer Satisfaction

Abstract

Most researchers focus on the effect of mergers and acquisitions (M&As) on investor returns and overlook customer reactions, despite the fact that customers are directly impacted by these corporate transformations. Others suggest that in M&A contexts, a dual emphasis of customer satisfaction and firm efficiency is both likely and beneficial. In contrast, the authors demonstrate that M&As not only do not yield a dual emphasis but also cause a decline in customer satisfaction to the extent that it eclipses any gain in firm value from an increase in firm efficiency. A quasi-experimental difference-in-differences analysis and an instrumental variable panel regression provide robust evidence for the dark side of M&As for customers. The authors use the attention-based view of the firm to demonstrate that post-M&A customer dissatisfaction occurs because of a shift in executive attention away from customers and toward financial issues. In line with the related upper echelons theory, they find that marketing representation on firms’ board of directors helps maintain executive attention on customers, which mitigates the dysfunctional effect of M&As on customer satisfaction. This research identifies a negative M&A-customer satisfaction relationship and highlights executive attention to customer issues and marketing leadership as factors that mitigate this negative relationship.

The “indie” premium: how independent firms create product value across cultures

“…Although many of these actions are strategically motivated on supply-side grounds (e.g. firm growth, market control, segment penetration), they often have unintended demand-side consequences (Umashankar et al, 2021). Our findings contribute to studies investigating consumer reactions to brand takeovers (Lee et al, 2011(Lee et al, , 2014Zhang et al, 2019) by showing that consumers actively judge the structure of power dependencies caused by these practices and punish firms that impose marketplace mandates at the expense of independent players.…”

“…Although many of these actions are strategically motivated on supply-side grounds (e.g. firm growth, market control, segment penetration), they often have unintended demand-side consequences (Umashankar et al ., 2021). Our findings contribute to studies investigating consumer reactions to brand takeovers (Lee et al ., 2011, 2014; Zhang et al.…”

“…First, independent firms represent strong competitive threats for global brands (Global Data, 2021;Nielsen, 2018;Shopify, 2021); thus, understanding the "indie" phenomenon and the psychological mechanisms that underly it is a trend that international marketers cannot afford to ignore. Second, until recently, independent firms have been usual acquisition targets of MNCs due to their inability to find viable strategies to deal with global competitive pressure because of limited mass market appeal and the dominance of global brands (Steenkamp et al, 2003) The "indie" premium products increases, MNCs' investments in acquisitions of independent brands becomes riskier as it leads to unintended consequences such as losses in customer satisfaction (Umashankar et al, 2021). Third, indie firms often build their identity around local associations, which regain relevance due to fading globalization prospects and consumers' shift towards authenticity seeking (Cleveland and McCutcheon, 2022;Bartsch et al, 2021;Witt, 2019).…”

“…, 2003). As demand for indie products increases, MNCs' investments in acquisitions of independent brands becomes riskier as it leads to unintended consequences such as losses in customer satisfaction (Umashankar et al ., 2021). Third, indie firms often build their identity around local associations, which regain relevance due to fading globalization prospects and consumers' shift towards authenticity seeking (Cleveland and McCutcheon, 2022; Bartsch et al.…”

Corporate lobbying and product recalls: an investigation in the U.S. medical device industry

“…This confirms our intuition that the unexplained mechanism between the direct effect of FDA lobbying on the number of product recalls is best explained focusing on the FDA side of the process. Notwithstanding this, future research could also try to investigate, among others, whether lobbying results in lower attention to customers/customer-focus (Umashankar et al, 2022;Vadakkepatt et al, 2022), eventually leading to an increase in product recalls.…”