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CHAPTER 1: INTRODUCTION
Mergers and acquisitions (M&As) have become a key part of many
corporate growth strategies, with diversification being the primary reason for
merging (Cocheo, 2008; Rosta, 2008). Banks seek to diversify in order to reduce
risks and increase returns, and geographic diversification, that is expanding
operations into multiple locations, is used to obtain greater market power. Banks
merge with other banks that have branch locations in multiple states in order to
reach a larger customer base. The anticipated benefits are less competition and
increased profits for the resultant bank. The corporate diversification strategy has
led to an increase in bank M&As. However, M&A transactions often fail to
achieve their intended purposes of increasing profits and market share (Cocheo,
2008; Rosta, 2008).
Behavior of employees affected by M&As may critically affect whether
M&As are ultimately successful (Appelbaum, Lefrancois, Tonna, & Shapiro,
2007; Range, 2006; Schreyogg, 2006; Van Dick, Wagner, & Lemmer, 2004).
Thus research aimed at elucidating the psychology of such employees may
assist leaders in achieving successful M&As. As elaborated below, the current
study was carried out to provide information applicable in this regard.
This chapter provides an introduction to the issue of the importance of
bank employees' job satisfaction following M&As and to the study design.
Specifically, a brief background highlighting the significance of the
aforementioned problem is provided, followed by statements of the specific
problem being addressed and the specific purpose of this study. A discussion of
2
the theoretical framework of this study is then given, followed by a presentation
of the research questions, nature of the study, and significance of the study.
Finally, a glossary of pertinent terminology and a summary of this chapter are
given.
Background
In forecasting the future of bank M&As, the impact of regulatory orders
cannot be ignored. Some institutions initiated M&As before regulators began to
push institutions towards the M&A. When other institutions had difficulty initiating
M&As, buyers waited until these institutions were about to fail before beginning
the acquisition process. Morgan (2009) reported that in the first half of 2009,
there were only 72 announced transactions in the banking industry, down from
109 deals in the same period a year earlier. However, Morgan predicts this
decline will flatten out or reverse by the end of the year, driven by banks'
continued need to raise capital. Nevertheless, the continued M&A activity
indicates that more banks are now facing the challenges caused by the M&As.
Zhu, May, and Rosenfeld (2004) found that only about 50% of all M&As
met initial financial expectations, the principle incentives for pursing M&As. In a
recent analysis of four bank M&As between 2005 and 2006, Sperduto (2007)
found that 70% of the bank M&As failed to produce the intended results of
increased profits and market share. Likewise, an international study of 52 M&As
between 1998 and 2004 conducted by KPMG found that 75-83% of M&As failed
to achieve their objectives (Cartwright & Schoenberg, 2006). The reasons cited
for considering the M&As as failures included reduced productivity, labor unrest,
3
increased absenteeism, and a loss of shareholder value relative to the pre-M&A
situation. The researchers interpreted their findings as signifying that there may
be a correlation between post-M&A underperformance and high failure rates.
These failures were usually attributed to financial and strategic factors only.
However, post-M&A underperformance relative to expectations could be related
to declines in employee commitment and job satisfaction. Indeed, according to
Harrison (2005), companies that do not recognize the business implications of
human emotions risk low morale, dips in productivity, and unsuccessful starts for
the M&A.
Researchers have attributed the less than stellar record of M&A
outcomes, in part, to how the integration of the participating firms affected the
employees of the acquired company (Range, 2006; Schreyogg, 2006; Van Dick,
Wagner, & Lemmer, 2004). Furthermore, research has shown that M&As can be
a traumatic event in the lives of the individuals and organizations involved in the
change. Many employees experience feelings of loss, resentment, and a decline
in job satisfaction, and their reactions can lead to the failure of the M&A
(Appelbaum et al., 2007; Cartwright & Schoenberg, 2006; Sperduto, 2007).
Appelbaum et al. concluded that such human resources (HR) difficulties may add
costs to the integration process and undermine the ability of a firm to achieve
synergy, and thereby offset the hoped-for benefits of merging.
According to Morrell, Loan-Clarke, and Wilkinson (2004), human capital
should be considered a critical resource upon which firms can rely on to gain a
competitive advantage in the marketplace after a M&A. Furthermore, Hunt and
4
Downing (2006) concluded that, in the majority of successful mergers, the
purchasers predicted that personnel problems would arise and acted quickly
when such problems surfaced. Thus, understanding the job facets that lead to
positive job satisfaction may help other business leaders deploy strategies that
could increase their chances for achieving successful mergers.
Statement of the Problem and Purpose
Historically, failures of M&As have been based on economic and financial
assessments only, but recently attention has shifted toward HR concerns
(Appelbaum et al., 2007; Stahl & Mendenhall, 2005). According to Wall (2005),
nearly 58% of all acquiring banks do not plan adequately for the cultural
integration of the merging companies. The success or failure of a M&A can be
attributed in part to the behavior of the affected employees (Appelbaum et al.,
2007). Unintended negative consequences of M&As on employee behavior
cannot be anticipated or alleviated without a clear understanding of how
employees are psychologically affected by M&As. At present, there is not
adequate information about the level of job satisfaction among bank employees
who have experienced a M&A to understand how they affect employee
psychology.
Hence, to address this problem, the present work aimed to assess overall
job satisfaction as well as a number of satisfaction components in bank
employees who have experienced a M&A. The purpose of this quantitative
descriptive study was to examine several facets of job satisfaction among bank
employees who were involved in a M&A, one to two years post merger, and to
5
assess whether satisfaction was related to the employees' demographic identity,
and whether there were differences among the satisfaction facets.
The population for this study included 229 current employees from four
banks that were involved in a M&A between January 2006 and December 2007.
The employees worked for the following banks located in the parenthetically
indicated geographic locations: Bank A (MA), Bank B (NC), Bank C (NY), and
Bank D (IL).
For the purposes of this research, the level alpha = 0.05 was chosen for
the analysis. Using an alpha level of 0.05 and varying degrees of power from
0.70 to 0.90, a priori sample sizes were computed to achieve various effect sizes
for a Chi-square test with values of 4 and 8 for the degrees of freedom. The
result of the power analysis was that the sample size needed for this research
was 82 samples to achieve an effect size of 0.3, a power of 0.80, at an alpha
level of 0.05, assuming a two-tailed test. The power analysis confirmed that the
229 respondents were satisfactory in terms of ensuring the results were
statistically significant for the population sampled.
Theoretical Framework
A growing body of literature indicates that M&As can be a traumatic event
in the lives of individuals and organizations (e.g., Bellou, 2007; Lipponen,
Olkkonen, & Moilanen, 2004; Mylonakis, 2006). Mergers and acquisitions are
extreme forms of organizational change, and employees perceive change as
threatening because of feelings of vulnerability and the fear of losing security.
6
According to Bellou (2007), employees can experience merger syndrome
characterized by increased self-interest as they became preoccupied with what
the integration actually means for them, their incomes, and their careers. In fact,
Bellou noted that employees seemed to react as they would to the loss of a loved
one and often treated the merger as a personal crisis. Among the subjects in
Bellou's study, this sense of loss manifested itself as listlessness, apathy, a
preoccupation with the past, lack of commitment to the new culture, fear, and/or
active resistance to the new system. Several negative attitudes and behaviors
emerged, including decreased job satisfaction, lack of organizational
commitment, disloyalty, nonproductivity, an increase in defective products,
mistakes on the job, and withdrawal behaviors (Bellou, 2007).
Individuals may have as many social identities as they have group
memberships. People who are working in an organization may derive their social
identity not only from the organizations to which they belong but also from their
work groups, departments, unions, lunch groups, and age cohorts. In addition to
age, such demographic groups as gender, organizational level, and educational
level have also been described as primary sources of identity for people in
organizations. Social identities have been used in past studies as key indicators
in determining job satisfaction, and several researchers having studied
demographic variables and the relationship between employee job satisfaction
and the M&A process (Chambers, 2008; Clinebell & Shadwick, 2004;
Paviglionite, 2007; Rhea, 2004). The findings concerning the effects of the
demographic variables have been mixed in these studies.
7
Despite the evidence in literature regarding the importance of post-M&A
issues, these topics have generally remained secondary considerations during
M&A transactions (Fish, 2007). A lack of attention to post-M&A integration has
been described as a key determinant in the ultimate success or failure of the
organizational M&A (Fish, 2007; Lisauskas & Lauraityte, 2004) because some
degree of inter-organizational integration is necessary to achieve the intent of the
deal. According to Stahl and Mendenhall (2006), the M&A process can be
characterized as three overlapping stages: transaction, transition, and
integration.
Finally, morale and performance are two primary outcomes that are of
interest to organizations (Nemanich & Keller, 2007). Morale, the human resource
side of the equation, determines the extent to which employees have positive
feelings about their commitment to their work and organization. A change in
employee morale can occur almost instantly, or it may take place over a long
time period. According to Nemanich and Keller, the combination of high
performance and high morale equates to organizational success; however, high
performance is not likely without positive employee morale.
Research Questions
Job satisfaction among U.S. bank employees who have experienced a
M&A was examined quantitatively through a study employing the Abridged Job
Descriptive Index (AJDI) and the Abridged Job in General (AJIG) instruments.
The study was designed to address the following two research questions:
8
RQ1. To what extent, if any, can demographic characteristics
predict differences in the level of job satisfaction, as measured by the
AJDI and AJIG survey instruments, among bank employees who have
experienced a M&A?
RQ2. How does job satisfaction among bank employees who have
experienced a M&A differ among particular facets of job satisfaction,
including work on present job, supervision, opportunities for promotion,
people at work, present pay, and the overall feeling of job satisfaction, as
measured by the AJDI and AJIG survey instruments?
Hypotheses
The hypotheses for Research Question 1 were formulated to assess
whether satisfaction in facets of the AJDI and AJIG survey instruments was
related to the employees' demographic identity. The hypotheses for Research
Question 2 were formulated to determine if there were significant differences in
the levels of job satisfaction among particular facets of job satisfaction as
measured by the AJDI and AJIG survey instruments. These facets included work
on present job, supervision, opportunities for promotion, people at work, present
pay, and overall feeling of job satisfaction. The hypotheses for Research
Questions 1 and 2, in null and alternative form, are as follows:
H1A0: There are no differences, as measured by the AJDI and AJIG
survey instruments, in the level of job satisfaction among bank employees who
have experienced a M&A based on age.
9
H1Aa: There are differences, as measured by the AJDI and AJIG survey
instruments, in the level of job satisfaction among bank employees who have
experienced a M&A based on age.
H1B0: There are no differences, as measured by the AJDI and AJIG
survey instruments, in the level of job satisfaction among bank employees who
have experienced a M&A based on gender.
H1 Ba'. There are differences, as measured by the AJDI and AJIG survey
instruments, in the level of job satisfaction among bank employees who have
experienced a M&A based on gender.
H1C0: There are no differences, as measured by the AJDI and AJIG
survey instruments, in the level of job satisfaction among bank employees who
have experienced a M&A based on job level.
H1Ca: There are differences, as measured by the AJDI and AJIG survey
instruments, in the level of job satisfaction among bank employees who have
experienced a M&A based on job level.
H1D0\ There are no differences, as measured by the AJDI and AJIG
survey instruments, in the level of job satisfaction among bank employees who
have experienced a M&A based on job tenure.
H1Da: There are differences, as measured by the AJDI and AJIG survey
instruments, in the level of job satisfaction among bank employees who have
experienced a M&A based on job tenure.
10
H1E0: There are no differences, as measured by the AJDI and AJIG
survey instruments, in the level of job satisfaction among bank employees who
have experienced a M&A based on level of education.
H1Ea\ There are differences, as measured by the AJDI and AJIG survey
instruments, in the level of job satisfaction among bank employees who have
experienced a M&A based on level of education.
H20: There are no significant differences in the levels of job satisfaction
among bank employees who have a experienced a M&A among particular facets
of job satisfaction, including work on present job, supervision, opportunities for
promotion, people at work, present pay, and the overall feeling of job satisfaction,
as measured by the AJDI and AJIG survey instruments.
H2a: There are significant differences in the levels of job satisfaction
among bank employees who have a experienced a M&A among particular facets
of job satisfaction, including work on present job, supervision, opportunities for
promotion, people at work, present pay, and the overall feeling of job satisfaction,
as measured by the AJDI and AJIG survey instruments.
Nature of the Study
A quantitative descriptive methodology design was used to measure the
level of job satisfaction among bank employees who have experienced a M&A
using the AJDI and AJIG survey instruments. In the AJDI, participants reported
their job satisfaction level for each of the following job facets using a Likert-type
scale: work on present job, opportunities for promotion, supervision, people at
work, and present pay. In the AJIG, participants reported their overall job
11
satisfaction. The independent variables for this study included age, gender, job
level, job tenure, and level of education. Data from the AJDI and AJIG were
analyzed using descriptive statistics, two-way analysis of variance (ANOVA)
tests, repeated measures ANOVAs, multiple regression, and factor analysis.
Participants, who were current employees of four banks that were involved
in M&As, were asked to complete the AJDI and the AJIG survey instruments
online using the interface provided at SurveyMonkey.com. It was expected that
workers would express a range of feelings that would differ across the different
examined aspects of their jobs, and that each of their scores would be
determined by particular aspects of the work situation and have distinct
relationships with other workplace variables, such as turnover (Stanton et al.,
2002). The participants' responses were analyzed to determine their levels of job
satisfaction and to determine which, if any, of the demographic variables affected
which aspects of job satisfaction.
The principal potential limitation to the methodology and design was that
employees were surveyed only after the M&A process was completed. With the
confidentiality surrounding a M&A, there was no opportunity to survey employees
prior to the announcement being made public in order to have both pre-M&A and
post-M&A measures.
Significance of the Study
Elucidation of the psychology of employees who have experience a M&A
is of critical importance from both business and social perspectives. Although
individual personalities, group dynamics, culture, strategy, and structure can
12
influence organizational performance (Chattopadhyay, Tluchowska, & George,
2004), many business leaders have yet to recognize or comprehend the keys to
optimal performance, particularly when overseeing merger activities. Insight into
strategies that improve the chances of a merger achieving success is important
for today's business leaders who seek a fair return on investment following a
merge.
The current study is significant for three reasons. First, this study focuses
on an industry that seldom analyzes employee reactions but whose employees
are influential in shaping the U.S. banking system. Second, the study's
importance lies in its potential to impact the success of M&As through analyzing
employee reactions to the merger by examining their levels of satisfaction with
specific job facets. Literature suggests that mishandling of the merger leads to
employee problems and ultimately to failure (Chambers, 2008). Finally, M&As
should also be considered from the HR point of view because of the sheer
number of people who are affected. Exploring the effects of M&As on bank
employees is of particular worth given that 25% of M&As in the U.S. take place in
the banking sector (Mylonakis, 2006). The human factor is important to consider
in determining the possible success or failure of a potential M&A, because the
reactions of employees could determine whether the M&A is worth pursuing
(Harrison, 2005).
Definitions
In business publications, the words merger and acquisition are used
interchangeably (Ahern & Weston, 2007; Van Dick et al., 2004; Zhu et al., 2004).
13
Because of anxiety associated with the word acquisition, bank management may
use the more benign term of merger (Davies, 2003). For purposes of this study,
the words merger and acquisition are used interchangeably to mean any
transaction that forms one bank from two or more previous banks.
Abridged Job Descriptive Index (AJDI). A survey that measures five
principal subscales of job satisfaction that have been identified as important
across numerous organizations. These subscales include work on present job,
present pay, opportunities for promotion, supervision, and people at work (Balzer
etal.,2000).
Abridged Job in General (AJIG). An addendum to the AJDI survey,
designed to reflect individuals' general feelings toward their jobs, encompassing
all aspects of job satisfaction (Balzer et al., 2000).
Acquisition. The purchase of entire companies or specific assets by
another company (Ahern & Weston, 2007).
Bank holding company. A company that owns two or more banks
(Hagendorff, Collins, & Keasey, 2007).
Economies of scale. Means of diffusing fixed costs among a large number
of customers (Kasman, 2005).
Economies of scope. Means of yielding more outputs with the same
inputs, resulting in changes in the product mix (Kasman, 2005).
Job Descriptive Index (JDI). A survey that measures facets of job
satisfaction that have been identified as important across numerous
organizations (Balzer et al., 2000).
Job level. The extent of responsibilities an employee has, designated as
categories of semiskilled, professional, supervisory-managerial, and executive.
Job satisfaction. The affective or emotional response toward various
facets of an individual's job (Kreitner & Kinicki, 2007).
Job tenure. The number of years a respondent has been employed at an
organization.
Level of education. The actual number of years of school completed
(Lesowitz & Knauff, 2003).
M&A. A transaction that forms one institution from two or more previous
institutions (Van Dick et al., 2004; Zhu et al., 2004).
Merger. Method of combining two businesses' concerns and assets into
one organization (Ahern & Weston, 2007).
Social Identity Theory. An individual's knowledge of belonging to one or
certain social groups that have emotional significance and value to him or her
(Tajfel & Turner, 1979).
Summary
The failures of some M&As may be attributable to the organizations'
neglect and mismanagement of their employees during the M&A process
(Cartwright, Tytherleigh, & Roberston, 2007). To examine this aspect of M&As
further, the study presented in this dissertation used a quantitative descriptive
design to measure job satisfaction levels of the participants and to determine the
influence of demographic variables on job satisfaction scores. Job satisfaction
scores were analyzed using the AJDI survey instrument to measure facets of job
15
satisfaction, which include (a) work on present job, (b) present pay, (c)
opportunities for promotion, (d) supervision, and (e) people at work. Satisfaction
with ones job in general was assessed using the AJIG instrument together with
the AJDI. Recognizing and addressing factors during the M&A process that
contribute to dissatisfaction, as well as those that contribute to satisfaction could
result in more successful integration during M&As.
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