International Review of Industrial and Organizational Psychology 2005 / Edition 1

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This is the twentieth in the most prestigious series of annual volumes in the field of industrial and organizational psychology. The series provides authoritative and integrative reviews of the key literature of industrial psychology and organizational behaviour. The chapters are written by established experts and topics are carefully chosen to reflect the major concerns in both the research literature and in current practice.
Continuing in the tradition of the series as a whole, this twentieth volume provides scholarly, up-to-the-minute reviews and updates of work in a number of well-established areas such as: mergers and acquisitions, burnout and health, and personality in industrial and organizational psychology. Emergent issues are also covered in chapters on social identity, emotions in organizations, the contribution of industrial and organizational psychology to ensuring safety in commercial aircraft, and the analysis of justice in human resource management decisions. Each chapter offers a comprehensive and critical survey of the chosen topic, and each is supported by a valuable bibliography. For advanced students, academics and researchers, as well as professional psychologists and managers, this remains the most authoritative and current guide to new developments and established knowledge in the field of industrial and organizational psychology.
Contributors to Volume 20
Neal M. Ashkanasy, Australia Claire E. Ashton-James, Australia Shlomo Berliner, Israel Susan Cartwright, UK Jose M. Cortina, USA Naomi Ellemers, The Netherlands Stephen W. Gilliland, USA Don Harris, UK S. Alexander Haslam, UK Michael J. Ingerick, USA Samuel Melamed, Israel Layne Paddock, USA Itzhak Shapira, Israel Arie Shirom, Israel Lauren Thomas, UK Sharon Toker, Israel

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Meet the Author

Gerard P. Hodgkinson is Professor of Organizational Behaviour and Strategic Management at the University of Leeds UK. He earned his BA, MSc, and PhD degrees at Wolverhampton Polytechnic and the Universities of Hull and Sheffield, respectively. He has published over 40 articles and chapters and two books on topics of relevance to the field of industrial and organizational psychology and in 2001 he was elected a Fellow of both the British Psychological Society and the British Academy of Management, in recognition of his pioneering contribution to the psychology of strategic management as an emergent field of study. This and related work on managerial and organizational cognition is currently being taken forward (2004–2006) through the award of a Fellowship of Advanced Institute of Management Research (AIM), the UK’s research initiative on management, funded by the Economic and Social Research Council (ESRC) and the Engineering and Physical Research Council (EPSRC). He is the Editor-in-Chief of the British Journal of Management and an Editorial Board Member of the Academy of Management Review, Journal of Occupational and Organizational Psychology and Organization Science. A practising chartered occupational psychologist, he has conducted numerous consultancy assignments for leading private and public sector organizations. Further information about Gerard and his work can be found at the following addresses: (1); (2)

J. Kevin Ford is a Professor of Psychology at Michigan State University. His major research interests involve improving training effectiveness through efforts to advance our understanding of training needs assessment, design, evaluation, and transfer. Dr Ford also concentrates on understanding change dynamics in organizational development efforts and building continuous learning and improvement orientations within organizations. He has published over 50 articles and chapters and four books relevant to Industrial and Organizational Psychology. Currently, he serves on the editorial boards of the Journal of Applied Psychology and Human Performance. He is an active consultant with private industry and the public sector on training, leadership, and organizational change issues. Kevin is a Fellow of the American Psychological Association and the Society of Industrial and Organizational Psychology. He received his BS in psychology from the University of Maryland and his MA and PhD in Psychology from the Ohio State University. Further information about Kevin and his research and consulting activities can be found at

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International Review of Industrial and Organizational Psychology, 2005

John Wiley & Sons

Copyright © 2005 John Wiley & Sons, Ltd.
All right reserved.

ISBN: 0-470-86710-8

Chapter One


Susan Cartwright Manchester Business School, The University of Manchester


The underperformance of Mergers & Acquisitions (M&As) has been a significant cause for concern since the 1960s (Kitching, 1967) and has provoked continuing research attention. In an earlier volume of this publication, Hogan and Overmeyer-Day (1994) presented a comprehensive review of the current literature relating to the psychology of M&As. The literature they cited was drawn predominantly from US sources and reflected the concentration of interest and activity in this field at that time. In this review the literature was usefully conceptualized as falling into four main research categories which in broad terms considered inputs, process, impact on employees, and performance outcomes:

(i) Studies which examine the pre-merger or exogenous variables such as: objectives, relative size, parent characteristics (e.g., past experience), culture, and target characteristics (e.g., prior performance and organizational or cultural fit).

(ii) Studies which focus on the integration or acculturation process and/or consider variables such as identity, communication, speed of change, controlmechanisms, and human resource interventions.

(iii) Studies which assess emotional and behavioral outcomes such as stress-related variables, affective variables (e.g., commitment and staff turnover), and absenteeism.

(iv) Studies which attempt to measure ultimate performance outcomes using objective measures like stock price or subjective measures like managerial assessment.

Given the economic and human importance of M&As, the contribution of psychology to the understanding of the M&A phenomenon and process outlined in the 1994 review was disappointing. In terms of literature coverage and the number of empirical research studies reported, it was apparent that the psychological aspects of M&A had received disproportionately less attention than the financial and strategic issues. Inputs and outcomes, it seemed, were more important than the integration process itself and the emotional and behavioral responses of employees. This lack of advancement reflected similar comments made earlier (Humpal, 1971), and more contemporary reviews lamenting the fragmented nature and paucity of research in this field (Cartwright & Cooper, 1990; Hunt, 1988).

The 1994 review was also highly critical of the quality of the existent studies relating to psychological issues which were variously described as being retrospective, anecdotal, speculative, and a theoretical. Furthermore, Hogan and Overmeyer-Day (1994) concluded that most studies lacked generalizability, as they were based on small sample sizes or the single case study method.

The purpose of this current chapter is to outline the main developments which have occurred in the M&A literature in the intervening period, particularly the contribution made by psychologists. In the last 10 years, the M&A literature has grown significantly as the level of activity has remained high worldwide. During that time, human and psychological factors have increased in prominence, yet it still remains a literature dominated by financial and market strategists (Sudarsanam, 2003). In the course of conducting this review an online library search of all the major management and psychology databases found that only about 5% of the abstracts retrieved, using M&A as the key words, could be considered to be related to the psychological aspects of M&As. On closer scrutiny, even fewer related to empirical studies and could be classified as pragmatic science as defined by Hodgkinson, Herriott, and Anderson (2001) and so could be regarded as making a contribution to evidence-informed management knowledge (Tranfield, Denyer, & Smart, 2003). The literature included has been chosen because it is widely cited, and hence perceived to be influential, and/or because it presents new perspectives and methodologies and draws upon empirical data. The material reviewed will be presented and organized around similar headings to those used in Hogan and Overmeyer-Day (1994). First, however, it is appropriate to briefly discuss the background and current context.

Current Developments in M&A Activity

There have been successive waves of M&A activity which can be traced back as far as the late 18th century (Buckley & Ghauri, 2003). In 1997, M&A activity entered its fifth and latest wave. At its height, in 2000, the dollar value of completed mergers, acquisitions and divestitures was in excess of US$1.7 trillion which represented an increase of 25% on the previous year (Cartwright & Price, 2003). A significant contributor to this increase has been an escalation in the frequency and value of international M&As, which account for approaching half of all deals worldwide. The countries regarded as most active in Europe are the UK, Germany, France, and the Netherlands (Sudarsanam, 2003).

While the USA continues to be a major acquirer of foreign companies, the value of these deals during the period 1991-2000 was notably less than the level of investment flowing into the US in terms of foreign acquisitions of US companies. In 2000 alone, over 1,000 American companies were acquired by overseas buyers at a value of US$340bn. In contrast, in the 10-year period between 1978-1988, a little over 200 US organizations were bought by foreign acquirers each year. The UK has also seen an increase in foreign direct investment, mainly from the USA, Japan, Germany, and France (Child, Faulkner, & Pitkethly, 2000) and in 1996 foreign acquisitions of UK companies exceeded the combined total value of all other EU countries (KPMG, 1997). In a recent survey of US and European senior managers working for organizations employing in excess of 1,000 employees (Cartwright & Price, 2003), it was found that over half had been involved in a merger during the previous 5 years and one in three had experienced an acquisition.

Since its beginning (Kitching, 1967; Meeks, 1977), the M&A literature has sought to explain why so many M&As tend to destroy rather than enhance firm value. Over time, estimates of M&A failure have been produced, ranging from 80% (KPMG, 2000; Marks, 1998) to 50% (Buono, Bowditch, & Lewis, 2002; Cartwright & Cooper, 1997; Hunt, 1988; Weber, 1996), which have served to reinforce earlier observations made that acquisition strategy is:

'an area of corporate strategy where inappropriate mathematical theory and a yearning for greener grass has prevailed over commonsense'. (British Institute of Management, 1986, p. 3)

While some sectors, such as banking and insurance, tend to achieve higher success rates than others in terms of enhanced shareholder value (Financial Times, August 2000), irrespective of the sector, it is the 'mega-mergers' between large, comparable-sized organizations which fail more frequently. Coopers & Lybrand (1992) carried out a study of 50 large UK acquisitions with a minimum value of £100mn during the late 1980s/early 1990s. Based on interviews with senior executives they found that 54% were regarded as failures. The most common reasons for failure were cited as being target management attitudes, cultural differences, and lack of post-acquisition integration planning. More recent reports (Booz, Allen, & Hamilton, 2001; Henry, 2002) suggest that between 60 and 70% of mega-mergers fail to improve shareholder wealth and more than half actually reduce it (KPMG, 2000). It is worth noting that such reports have mainly been produced by accounting and consultancy firms that offer advisory services to businesses involved in M&As.

In a relatively small-scale study of acquisition performance Hunt (1988) also highlighted a concerning issue that experienced acquirers performed no better than those organizations acquiring for the first time. This would suggest that there is little transference of management learning or that the strategy and process of integration is contingent upon the circumstances and so varies from one acquisition to another. However, more recent studies (Haleblian & Finkelstein, 1999; Schoenberg, 2003) have found evidence that previous experience is associated with superior performance and that, in part, it is the result of a greater level of resource-sharing and the centralization of functions.

Within the psychological literature, it has been consistently argued that human factors are the key to M&A success or failure (Cartwright & Cooper, 1997; Terry, 2003) and that insufficient attention has been paid to the way in which M&As are planned and implemented, a view which is also increasingly shared by M&A managers (Coopers & Lybrand, 1992). However, because so much of M&A success, in terms of share performance, is dependent upon market confidence, organizational leaders may be prone to exaggerate the potential gains and benefits of M&A activity in their statements to the business press and so create unrealistic expectations as to what the deal will deliver. More attention to human factors is likely to improve the likelihood of M&A success, but it seems inevitable that a gap between expectation and reality will continue to exist.

Research Context

M&As are recognized to be difficult settings in which to conduct psychological research. Access to commercial organizations at such a sensitive time is problematic. Establishing the attitudes, behaviors, emotions and psychological states of employees prior to the event are particularly difficult because of the secrecy which surrounds M&A negotiations. Once rumours of an impending M&A start to circulate, organizational stability is disturbed and employees have already effectively become engaged in a change process. Therefore, even at this early stage, any data collected related to their current attitudes and behaviors will have already been shaped by the rumored event. Consequently, studies which have attempted to compare data pre and post merger have done so using retrospective reconstruction methods by questioning employees as to how they felt or thought during a period of time prior to the event, despite the inherent weaknesses of such an approach (Cartwright & Cooper, 1997). More fortunate researchers have been able to draw upon data from pre-existing employee attitude surveys or personnel records (Schweiger & De Nisi, 1991).

In the past, other researchers have chosen to avoid the problems associated with M&As in the private sector and focused on quasi-mergers involving combinations in the public and voluntary sectors which are generally more accessible (Blumberg & Weiner, 1971; Dackert, Jackson, Brenner, & Johansson, 2003; Humpal, 1971; Shirley, 1973; Wicker & Kauma, 1974). Others (Berney, 1986; Rentsch & Schneider, 1991) have abandoned field investigations altogether and conducted laboratory-based experiments using hypothetical M&A scenarios, usually involving student samples. Although such methods have the advantage of providing a more controlled environment in which to isolate, manipulate, and investigate variables, they fail to capture the complexity and dynamic nature of real-life M&A situations. Because mergers, as well as acquisitions, are rarely a marriage of equals (Humpal, 1971), power dynamics play a major role in determining who are the 'winners and losers' in terms of merger outcomes. Consequently, the validity of M&A data can be weakened by response bias and unrepresentative sampling. Furthermore, the emotional and behavioral responses are liable to temporal fluctuation at different stages in the merger process (Cartwright & Cooper, 1997).

However, there have been some encouraging developments in more recent studies which have become more theory-driven than in the past. Although it is still the case that the majority of recently published empirical studies are cross-sectional rather than longitudinal in design, a greater emphasis has been placed on systematic theory-building and testing (Ashkanasy, 1985; Krug, 2002). The case study method has continued to be a popular methodological approach (Empson, 2001; Meyer, 2001), but there are now some studies which use multiple cases rather than rely on a single case study (Larsson & Lubatkin, 2001; Larsson & Risberg, 1998). Perhaps the most notable change in the M&A literature is the growth in research which has emanated from outside the US, particularly the degree of attention which the topic is now receiving in Europe. Domestic M&A activity is complex; the increase in cross-border M&As has added an additional layer of complexity to this intriguing phenomenon. Ten years ago, the compatibility of M&A partners was debated and considered almost entirely within the context of similarities and differences in organizational cultures; the focus of this debate has since been extended to consider the role of national culture differences. While the themes within the literature have changed little from the categories identified by Hogan and Overmeyer-Day (1994), some have grown and developed more than others and will now be considered in detail.



The motives for M&A are many and various and are closely linked to prevailing economic, social, regulatory, and market conditions (Cartwright & Cooper, 1990). A distinction is usually drawn between managerial or non-value-maximizing motives and financial or value-maximizing motives (Napier, 1989). Managerial or non-value-maximizing motives refer to M&As which are aimed at increasing market share, managerial prestige and market confidence, whereas financial or value-maximizing motives are concerned with achieving financial synergies. Whilst the motives for M&A remain unchanged, the continuing expansion of the membership of the EU and the growth of new market economies like China over the last 10 years has provided new geographical opportunities for organizations to grow through merger and acquisition (Buckley & Ghauri, 2003).

Comparatively less attention has been paid to the potential psychological and less overt motives for M&As (Hunt, 1988; Levinson, 1970; McManus & Hergert, 1988; Rhoades, 1983), whereby CEOs and senior managers engage in the activity out of personal fear of obsolescence as a means to increase their power, enhance their career prospects, or create excitement (Donaldson & Preston, 1995). As Fitzroy, Acs, and Gerlowski (1998) observe, executive remuneration and compensation are both closely related to organizational size and the financial enticements offered to senior executives to remain or to leave merged or acquired companies can be substantial (Cartwright & Cooper, 2000).

Understandably, the covert nature of psychological motives which organizational leaders may have in initiating a merger or acquisition is not an area which easily lends itself to empirical research. However, there is some limited evidence to suggest that the collective decisions reached by senior management teams are affected by the composition of the group and the extent to which they share similar beliefs when evaluating potential M&A targets. Corner (2003) has studied collective cognition, in terms of the extensiveness and homogeneity of beliefs toward acquisition among top management teams in New Zealand. Based on a sample of 60 top management teams responsible for recent acquisitions, she found that belief extensiveness, defined as 'the richness or number of different acquisition beliefs', possessed by top management teams had a positive and significant relationship with financial performance, whereas belief homogeneity was negatively correlated with acquisition performance. The findings support the view of Hitt, Harrison, Ireland, and Best (1998) that the cognitive limitations of top management teams affect the financial success of an acquisition and can lead to inadequate target evaluation as a result of group think (Janis, 1982). Therefore, strong leaders who discourage challenge and belief diversity within their senior management teams may be more able to influence M&A decisions that benefit their own personal interests rather than those of shareholders.


Excerpted from International Review of Industrial and Organizational Psychology, 2005 Copyright © 2005 by John Wiley & Sons, Ltd.. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

About the Editors.

List of Contributors.

Editorial Foreword.

1. Mergers and Acquisitions: An Update and Appraisal (Susan Cartwright).

2. Social Identity in Industrial and Organizational Psychology: Concepts, Controversies, and Contributions (S. Alexander Haslam and Naomi Ellemers).

3. Personality in Industrial/Organizational Psychology: Not Much More than Cheese (Jose M. Cortina and Michael J. Ingerick).

4. Organizational Justice across Human Resource Management Decisions (Stephen W. Gilliland and Layne Paddock).

5. Contributions of Industrial/Organizational Psychology to Safety in Commercial Aircraft (Don Harris and Lauren Thomas).

6. Emotion in Organizations: A Neglected Topic in I/O Psychology, but with a Bright Future (Neal M. Ashkanasy and Claire E. Ashton-James).

7. Burnout and Health Review: Current Knowledge and Future Research Directions (Arie Shirom,Samu el Melamed, Sharon Toker, Shlomo Berliner,and Itzhak Shapira).


Contents of Previous Volumes.

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