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Antecedents%20of%20Target%20Firm%20Members%92%20Trust%20in%20the%20Acquiring%20Firm's%20Management%2

ANTECEDENTS OF TARGET

FIRM MEMBERS’TRUST IN

THE ACQUIRING FIRM’S MANAGEMENT:

A DECISION-MAKING SIMULATION Gu nter K.Stahl,Chei Hwee Chua and Amy L.Pablo

ABSTRACT

Prior research on post-acquisition integration has paid little attention to the factors that in?uence the development of trust between the members of an acquiring?rm and those of the target?https://www.wendangku.net/doc/e712096863.html,ing a policy capturing approach,we found that?ve aspects of the takeover situation and the integration process affect target?rm members’trust in the acquiring ?rm’s management:takeover friendliness,national cultural similarity, interaction history of the acquiring?rm and the target?rm,retained autonomy,and attractiveness of the acquiring?rm’s HR policies.Our ?ndings suggest that of the?ve trust antecedents,the attractiveness of the acquirer’s HR policies is by far the most powerful predictor of target?rm members’trust in the acquiring?rm’s management.The implications for post-acquisition integration research and practice are discussed. Theoretical frameworks for explaining post-acquisition performance have traditionally focused on?nancial and strategic factors,such as the degree of Advances in Mergers and Acquisitions,Volume5,69–89

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ISSN:1479-361X/doi:10.1016/S1479-361X(06)05004-6

‘‘strategic ?t’’between the acquiring and target ?rms,the method of pay-ment,the acquisition premium paid,and so forth.It was not until relatively recently that research endeavors have begun to analyze the ‘‘softer,’’less tangible social,cultural,and psychological issues involved in integrating acquired ?rms.Factors such as cultural ?t,management style similarity,the pattern of dominance between the acquiring and target ?rms,and the social climate surrounding a takeover have increasingly been recognized to be of critical importance to the success of acquisitions (e.g.,Birkinshaw,Bresman,&Hakanson,2000;Cartwright &Cooper,1996;Schweiger &Goulet,2000;Stahl,Mendenhall,Pablo,&Javidan,2005).

Another,largely underexplored factor that may play a key role in the suc-cess and failure of acquisitions is trust.Few attempts have been made to examine,either conceptually or empirically,the role that trust plays in the post-acquisition integration process.However,case studies of mergers and acquisitions (M&A)(e.g.,Chua,Stahl,&Engeli,2005;Olie,1994;Sales &Mirvis,1984)as well as interviews with managers and employees of acquired organizations (e.g.,Krug &Nigh,2001;Napier,Simmons,&Stratton,1989;Schweiger,Ivancevich,&Power,1987)consistently stress that trust is of critical importance to the success of M&A.Yet,these case studies and interview ?ndings also suggest that trust is one of the qualities that suffers most during a merger or takeover.Daniel Vasella,CEO of Novartis,has summarized well the importance and fragility of trust in M&A when he noted:‘‘Only in a climate of trust are people willing to strive for the slightly impossible,to make decisions on their own,to take initiative,to feel accountable;trust is a prerequisite for working together effectively.y Among all the corporate values,trust was the one that suffered most from the merger’’(Chua et al.,2005,pp.391–392).Despite the large body of anecdotal evidence supporting the critical role of trust in M&A,little is known about the factors that facilitate or impede the development of trust in acquired companies.Drawing upon Stahl and Sitkin’s (2001,2005)theoretical work on the role of trust in the post-acquisition inte-gration process,we will develop a set of hypotheses regarding the antecedents of target ?rm members’trust in the acquiring ?rm’s management in the aftermath of a takeover and provide an empirical test using a policy capturing approach.

ANTECEDENTS OF TARGET FIRM MEMBERS’

TRUST IN THE ACQUIRING FIRM’S MANAGEMENT In the literature on intra-and interorganizational trust,there is a remark-able diversity in conceptualizations of trust.However,central to most GU

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Antecedents of Target Firm Members’Trust71 de?nitions are the notions of risk and vulnerability.Risk means that a party could experience negative outcomes if the other party is untrustworthy.The risk of negative outcomes must be present for trust to operate,and the trustor must be willing to be vulnerable.In the absence of risk,trust is irrelevant because there is no vulnerability(Mayer,Davis,&Schoorman, 1995;Rousseau,Sitkin,Burt,&Camerer,1998).

Rousseau et al.(1998,p.395)de?ne trust as‘‘a psychological state com-prising the intention to accept vulnerability based upon positive expecta-tions of the intentions or behavior of another.’’This conceptualization of trust has been applied to interorganizational relationships.For example,in the context of joint ventures,open communication and information ex-change,task coordination,informal agreements,and low levels of surveil-lance and monitoring are all manifestations of trust based on a willingness to rely on or be vulnerable to another party under a condition of risk (Currall&Inkpen,2002;Inkpen&Currall,1997).

Evidence about the critical role that trust may play in the post-acquisition integration process can be drawn from a large body of research on intra-and interorganizational trust.This research suggests that trust is important in a number of ways:it can lead to increased employee commitment,cit-izenship behavior,and job performance;improve manager–subordinate re-lationships;enhance the?rm’s ability to adapt to complexity and change; and facilitate the implementation of self-managed work groups.Trust can also decrease agency and transaction costs by limiting the need for mon-itoring and control and,ultimately,provide?rms with a competitive ad-vantage(see Dirks&Ferrin,2001;Jones&George,1998;Kramer,1999; Mayer et al.,1995for reviews).Furthermore,research on interorganiza-tional trust has shown that the development of trust is crucial to the suc-cessful formation and implementation of cooperative alliances between ?rms,such as joint ventures,R&D collaborations,and marketing partner-ships(Das&Teng,1998;Inkpen&Currall,1997;Ring&Van de Ven,1992; Zaheer,McEvily,&Perrone,1998).The latter line of research seems par-ticularly relevant to the study of M&A because the factors which are held responsible for the poor performance of alliances are in part those theorized to be associated with M&A failure(Cartwright&Cooper,1996;Evans, Pucik,&Barsoux,2002;Marks&Mirvis,1998).

Stahl and Sitkin(2001,2005)have suggested that the level of trust between the members of the target?rm and the acquiring?rm’s management is a key factor in the success and failure of acquisitions.Drawing on the organizational trust literature,they propose that target?rm members’trust in the acquiring ?rm’s management is affected by characteristics of the initial takeover

situation,as well as process variables related to the acquiring ?rm’s integration decisions and actions.The following ?ve factors seem particularly critical in in?uencing target ?rm members’trust in the acquiring ?rm’s management:mode of takeover,national cultural distance,interaction history of the ac-quiring ?rm and the target ?rm,retained autonomy,and perceived attrac-tiveness of the acquiring ?rm’s human resource (HR)policies and practices.

Friendliness of the Takeover

It has been argued that hostile takeover tactics can result in sharp inter-organizational con?ict and pose major obstacles to achieving integration bene?ts in M&A (Buono &Bowditch,1989;Hambrick &Cannella,1993;Hitt,Harrison,&Ireland,2001).According to Hunt (1990),the tone of the negotiations –whether the tone is friendly or hostile –is one of the most important in?uences on the post-acquisition integration success because of its effect on the quality of the interpersonal relationships between the mem-bers of the combining organizations.Friendliness is likely to generate per-ceptions of goodwill and trust,and to enhance the quality of communication and collaboration between the acquiring ?rm and the target ?rm.

In contrast,trust can erode when target ?rm executives and those of the acquiring ?rm battle each other in a public forum,each being suspicious of the other’s intentions and claiming the other party’s inadequacy and lack of trustworthiness (Hambrick &Cannella,1993).Compared to friendly acqui-sitions,acquirers in hostile takeovers are also more likely to replace the man-agement of the target ?rm and to impose rigorous controls on the target ?rm (Hambrick &Cannella,1993;Krug &Nigh,2001).As a result of the threat of a hostile takeover,in-group out-group bias may increase,with the target ?rm employees striving to maintain their positive social identity by denigrating the acquiring ?rm and its management (Buono &Bowditch,1989;Elsass &Veiga,1994).Employees of acquired ?rms have likened the unwanted takeover to a rape and described the acquiring ?rm managers as attackers or barbarians –people not to be trusted (Marks &Mirvis,2001).Therefore,we hypothesize:Hypothesis 1.The level of target ?rm members’trust in the acquiring ?rm’s management is positively related to the friendliness of the takeover.

National Cultural Similarity

The ‘‘cultural distance’’hypothesis,in its most general form,holds that the dif?culties,costs,and risks associated with cross-cultural contact increase GU

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Antecedents of Target Firm Members’Trust73 with growing cultural distance between two individuals,groups,or organ-izations(Hofstede,1980;Kogut&Singh,1988).It has been argued that cross-border acquisitions are more dif?cult to integrate than domestic ones because they require‘‘double-layered acculturation’’(Barkema,Bell,& Pennings,1996,p.151),whereby not only different corporate cultures have to be integrated,but differences in national cultural values and practices also have to be managed.Although the relationship between national cul-tural differences and post-acquisition performance is likely to be more complex than the‘‘cultural distance’’hypothesis suggests(Schweiger& Goulet,2000;Stahl&Voigt,2005;Weber,Shenkar,&Raveh,1996),studies that examined the impact of cultural differences on sociocultural integration outcomes have generally found a negative relationship(e.g.,Krug&Nigh, 1998;Larsson&Finkelstein,1999).

Prior acquisition research has not explicitly addressed the relationship between cultural distance and trust.However,research on intra-and inter-organizational trust has shown that shared values and other sources of cultural similarity facilitate the development of trust between organizational members(Sarkar,Cavusgil,&Evirgen,1997;Sitkin&Roth,1993).Since individuals are more likely to perceive out-group members as untrustworthy than they are to so perceive in-group members,an individual’s trust in another person or group will be greater when the two are culturally or ethnically similar(McAllister,1995).In contrast,fundamentally different values,goals and beliefs are likely to limit the potential for trust to emerge (Elsass&Veiga,1994;Sitkin&Roth,1993).Therefore,

Hypothesis2.The level of target?rm members’trust in the acquiring ?rm’s management is positively related to the national cultural similarity between the acquiring?rm and the target?rm.

Interaction History

A large body of research on the role that trust plays in work groups,stra-tegic alliances,and socially embedded partnerships suggests that trust evolves over time through repeated interactions between partners(Gulati, 1995;Ring&Van de Ven,1992;Zaheer et al.,1998).Not unlike romantic relationships,inter?rm relationships mature with interaction frequency,du-ration,and the diversity of challenges that partners encounter and face together(Lewicki,McAllister,&Bies,1998).As Rousseau et al.(1998,p. 399)have noted,‘‘[r]epeated cycles of exchange,risk taking,and successful ful?llment of expectations strengthen the willingness of trusting parties to

rely upon each other and expand the resources brought into the exchange.’’Further,partners come to learn each other’s idiosyncrasies and to have deeper mutual understanding over time,which improves the affective qual-ity of the relationship (Parkhe,1993).

This indirect evidence from the strategic alliance literature suggests that,in the context of acquisitions,familiarity and positive exchanges facilitate the development of trust between the members of the target ?rm and those of the acquiring company.If the two ?rms involved in an acquisition have prior experience collaborating on a joint venture or some other form of alliance,this common history of interaction is likely to result in a shared identity and greater mutual trust.

Hypothesis 3.The level of target ?rm members’trust in the acquiring ?rm’s management is positively related to the extent to which a history of prior contacts exists between the members of the two ?rms.

Retained Autonomy

Although,theoretically,integration can result in a balanced merging of two organizations,cultures and workforces,this balance rarely occurs in prac-tice.Instead,the acquirer typically imposes control on the target ?rm and,where changes occur in policies,systems,and culture,they affect the mem-bers of the target ?rm more strongly than those of the acquirer (Cartwright &Cooper,1996;Hambrick &Cannella,1993;Pablo,1994).Imposed con-trol refers to a situation in which the acquirer removes autonomy from the target ?rm and imposes a rigorous or standardized set of rules,systems,and performance expectations upon it in order to gain quick control (Datta &Grant,1990;Jemison &Sitkin,1986).Because controls tend to signal the absence of trust,their use typically hampers the emergence of trust in re-lationships (Sitkin,1995;Sitkin &Roth,1993).

Autonomy removal can be devastating from the perspective of the mem-bers of the target ?rm.Being put under close monitoring and control can lead to feelings of helplessness,hostility,and resentment (Buono &Bowditch,1989;Hambrick &Cannella,1993)–a situation that Datta and Grant (1990)have termed the ‘‘conquering army syndrome.’’In such situations,it seems likely that the acquiring ?rm’s management is perceived as uniformly ma-levolent and not to be trusted by the members of the target ?rm.Therefore,Hypothesis 4.The level of target ?rm members’trust in the acquiring ?rm’s management is positively related to the extent of autonomy re-tained by the target ?rm.

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Antecedents of Target Firm Members’Trust75 Attractiveness of Acquiring Firm’s HR Policies

It has been suggested that the way employees react to a merger or takeover depends to a large extent on the personal bene?ts and losses attributed to it (Cartwright&Cooper,1996;Hunt,1990;Schweiger&Walsh,1990).For example,if members of the target?rm see the takeover as a chance for greater job security and increased prospects for compensation,promotion, and personal development,this is likely to affect their attitude toward the acquiring?rm’s management.The perceived attractiveness of the acquirer, as manifested in its HR policies and practices,reduces the potential for con?ict and makes smooth integration more likely(Nahavandi& Malekzadeh,1988;Stahl,Pucik,Evans,&Mendenhall,2004). Consistent with this line of reasoning,a study of the effects of a merger involving two brokerage?rms by Graves(1981)found that the employee reactions depended primarily on the personal bene?ts and losses attributed to the merger.Similarly,Larsson’s(1990)study of Swedish acquisitions revealed that increased job security,rewards,and opportunities for future career advancement reduced target?rm members’resistance to a takeover. In a study of British takeovers conducted by Hunt(1990),the degree to which the target?rm members’career opportunities were expanded in the post-acquisition integration period was directly related to acquisition suc-cess.When taken together,these?ndings suggest the following hypothesis. Hypothesis5.The level of target?rm members’trust in the acquiring ?rm’s management is positively related to the attractiveness of the ac-quiring?rm’s HR policies.

Interaction Effects

In addition to the hypothesized direct effects on trust,the?ve aspects of the takeover situation and integration process discussed above may interactively in?uence target?rm members’trust in the acquiring?rm’s management. First,there is evidence to suggest that the negative effects of a hostile mode of takeover on target?rm members’trust are more pronounced in cross-border acquisitions than in domestic ones,which suggests an interaction effect between mode of takeover and national cultural similarity.Feelings of helplessness and antagonism that result from hostile takeover tactics are likely to be augmented by cultural and communication barriers,and the associated stereotypes,misconceptions,and chauvinistic biases(Cartwright &Cooper,1996;Olie,1990).Angwin(2001),in explaining the emotionally

charged atmosphere created by the takeover of Mannesmann by Voda-phone,likened hostile cross-border takeovers to wars of business and cul-tural systems.Therefore,

Hypothesis 6.There is an interaction effect between national cultural similarity and mode of takeover such that the negative effects of hostile takeover tactics on trust will be stronger when there are signi?cant na-tional cultural differences between the target ?rm and the acquiring ?rm.Second,we predict an interaction effect for the relationship between na-tional cultural similarity and retained https://www.wendangku.net/doc/e712096863.html,pared to domestic M&A,cross-border ones which involve the removal of autonomy and im-position of rules,systems,and performance expectations by the acquiring ?rm are likely to be more devastating for target ?rm members as they are expected to conform to the acquiring ?rm’s cultural norms and practices that are signi?cantly different from their own (Buono &Bowditch,1989;Cartwright &Cooper,1996).Therefore,

Hypothesis 7.There is an interaction effect between national cultural similarity and retained autonomy such that the negative effects of au-tonomy removal on trust will be stronger when there are signi?cant na-tional cultural differences between the target ?rm and the acquiring ?rm.Finally,we expect an interaction effect between retained autonomy and attractiveness of the acquiring ?rm’s HR policies.The extent to which an acquirer removes autonomy from the target ?rm depends on the attempted level of integration,and this can range from total autonomy to total absorp-tion (Datta &Grant,1990;Larsson &Finkelstein,1999).If the target ?rm retains complete autonomy,the acquiring ?rm’s HR policies are less relevant to the members of the target ?rm,as no major changes in the target ?rm’s HR policies and compensation and bene?ts system are intended.Although the possibility of inter?rm comparisons among employees exist even in the case of an acquirer adopting a hands-off integration approach,the quality of the acquirer’s HR policies is likely to be a more critical issue for target ?rm members if the acquirer imposes its systems and practices on the target ?rm.Hypothesis 8.There is an interaction effect between retained autonomy and attractiveness of the acquiring ?rm’s HR policies such that the pos-itive effects of perceived attractiveness of the acquirer’s HR policies on trust will be stronger in cases where the acquirer imposes its systems and practices on the target ?rm.

Fig.1summarizes the hypothesized relationships.

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Antecedents of Target Firm Members’Trust77

Fig.1.Hypothesized Antecedents of Target Firm Members’Trust in the Acquiring

Firm’s Management.

METHODOLOGY

Design and Measures

We used a policy capturing design to test our hypotheses.Through the policy-capturing technique,individuals’decisions in particular domains can be modeled by presenting them with experimentally designed decision sce-narios to manipulate the level of a number of theoretically determined de-cision criteria.It has been used to study an array of decision-making processes within the organizational context,for example,job choice deci-sions(e.g.,Judge&Bretz,1992),judgments of sexual harassment(York, 1989),willingness to reconcile a relationship following a trust viola-tion(Tomlinson,Dineen,&Lewicki,2004),and integration decisions in acquisitions(Pablo,1994).Since the level of trust that a given party has for another party can be conceived of as the result of a decision-making process

(Mayer et al.,1995;McAllister,1995),the policy-capturing design seemed particularly well suited for testing our hypotheses.

The policy-capturing design offers several advantages that are important for this study.First,it allows researchers to examine how individuals ‘‘weight,combine,or integrate information’’when making decisions (Zedeck,1977,p.51).Second,the policy-capturing design provides a rel-atively high degree of control over confounding variables (Aiman-Smith,Scullen,&Barr,2002).Third,it overcomes many of the limitations inherent in other,more direct approaches to examining individuals’decision policies (Karren &Barringer,2002).Some studies have found that stated decision policies differ from actual (observed)decision policies when individuals were asked to rate or rank the variables of interest in order of importance,thus raising concerns about the validity of such self-report attribute ratings (e.g.,Hitt &Middlemist,1979;Sherer,Schwab,&Heneman,1987;Stumpf &London,1981).Such discrepancy may stem from social desirability re-sponse bias where respondents may not be candid due to their desire to be socially correct.The policy-capturing method is considered to be preferable to the self-report attribute ratings method as it weakens social desirability response bias by indirectly assessing the importance of explanatory varia-bles (Arnold &Feldman,1981;Judge &Bretz,1992;Rynes,Schwab,&Heneman,1983).

In this study,?ve independent variables,(i.e.,the hypothesized anteced-ents of target ?rm members’trust in the acquiring ?rm’s management),were manipulated.Friendliness of the takeover was manipulated by indicating in the scenario either that the target ?rm was acquired with the support of the target ?rm’s management or that the target ?rm was acquired against the will of the target ?rm’s management.National cultural similarity was ma-nipulated by indicating in the scenario that it was a domestic acquisition or that it was a cross-border acquisition.Interaction history was manipulated by indicating in the scenario that the acquiring ?rm and the target ?rm had a history of collaboration,and that the target ?rm members had some per-sonal contact with members of the acquiring ?rm prior to the takeover.Retained autonomy was manipulated by indicating in the scenario either that the target ?rm would likely be allowed to retain its own culture and much of its autonomy or that the acquiring ?rm was likely to impose its culture,practices and systems on the target ?rm during consolidation of the two organizations.Attractiveness of acquiring ?rm’s HR policies was manipu-lated by indicating in the scenario either that the acquiring ?rm’s HR pol-icies and reward systems were known to be employee-friendly or that they were known to be employee-unfriendly.

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Antecedents of Target Firm Members’Trust79 Based on a one-half fractional replicate of a full factorial experimental design(Cochran&Cox,1957)and with each of the?ve independent var-iables manipulated at two levels,we developed two different sets of scenar-ios that consisted of16takeover scenarios each(1?2?2?2?2?2).Since fractional designs give substantially the same results as fully crossed designs for nomothetic research(Graham&Cable,2001),the one-half fractional design was used to avoid respondent overload by reducing the number of scenarios that each respondent had to evaluate.The two different sets of16 takeover scenarios became part of two standardized questionnaires.For each of these questionnaires,we created another questionnaire and varied the sequencing of the16takeover scenarios to control for effects of order on responses.Hence,we had four different questionnaires in total.

The dependent variable,level of target?rm members’trust in the acquiring ?rm’s management,was measured by a question using a?ve-point Likert scale.Respondents were instructed to adopt the perspective of a target?rm member when reading the takeover scenarios and to indicate on the?ve-point Likert scale ranging from1(very little extent)to5(very great extent), the extent to which they would trust the acquiring?rm management.Each respondent also provided demographic and background information(e.g., gender,age,position level in the current company,and prior experience with an acquisition situation).

Pretesting was done at several stages of the development of the ques-tionnaire using Canadian Executive MBA students.Pretests involved read-ing the scenarios for clarity and interest.Pretesting was also done to check the effectiveness of the manipulations,clarity of the instructions,and the amount of time needed to complete the questionnaire.Revisions were made at each stage of pretesting.

Sample

Surveys were administered to820Canadians working in different companies in Canada.They included currently employed students of a Canadian busi-ness school’s executive MBA program,Canadian alumni of an international business school,and employees at Canadian companies whose HR execu-tives were willing to distribute the questionnaires to them.Two hundred nine surveys were returned for a response rate of26%.Ten surveys were unusable,resulting in a?nal sample of199.

Eighty-two percent of respondents were in managerial positions and71% had a college education.Eighty percent were male and89%were above 30years old.Seventy-three percent of the respondents had experienced an

acquisition while working with their current or previous employer(s).This shows that the sample is appropriate and respondents are able to respond adequately to the acquisition scenarios presented in our questionnaire.

Data Analysis

Moderated regression analysis was used to test the hypotheses and assess the relative effect of each independent variable on the dependent variable across all respondents.Since our hypotheses are nomothetic,we pooled our data across all respondents to do the analysis as recommended by Aiman-Smith et al.(2002).Each respondent made 16decisions,resulting in a total of 3,184(199respondents ?16decisions)observations available for analysis.This means that the data set consists of multiple responses by each respondent.Since autocorrelation was found by some policy capturing studies in their pooled sample (for example,Judge &Bretz,1992;Tomlinson,Dineen,&Lewicki,2004),we veri?ed if there was autocorrelation in our pooled sam-ple.When there is autocorrelation,standard statistical tests of regression coef?cients using ordinary least squares (OLS)regression may be biased.The Durbin–Watson statistic can estimate the degree of autocorrelation.It has an expected value of 2under the hypothesis of no autocorrelation.In the present case,the statistic was 1.34,suggesting that there is some degree of autocorrelation.

To deal with autocorrelation,Rynes,Weber,and Milkovich (1989)rec-ommended including a dummy variable for each respondent in the pooled sample OLS equation.In the present case,we created n à1,or 198dummy variables and entered them in the ?rst step of the pooled sample regression equation to partial out each respondent’s idiosyncratic contribution to the overall regression.This step controls for autocorrelation,as well as re-spondent characteristics such as gender,age,position level in the current company and prior experience with an acquisition situation.In the second step,we entered all ?ve independent variables to assess the main effects.In the third step,the three hypothesized interaction terms were added.

RESULTS

Moderated regression analysis was used to estimate the relative weight given to each of the ?ve independent variables by respondents in their decision to trust the acquiring ?rm’s management.Table 1shows the results.The re-spondent control variables entered in the ?rst step accounted for 23.5%of GU

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Antecedents of Target Firm Members’Trust81 the variance in respondents’trust decision,i.e.,23.5%of the variance in the level of trust in the acquiring?rm’s management is due to individual differ-ences.

In the second step,all?ve independent variables were entered to assess the main effects.Together,they explained an additional34.3%of the variance in the level of target?rm members’trust in the acquiring?rm’s manage-ment.As indicated by Table1,all?ve independent variables,friendliness of the takeover,national cultural similarity,interaction history,retained au-tonomy,and attractiveness of the acquiring?rm’s HR policies signi?cantly in?uenced respondents’trust in the acquiring?rm’s management.In all cases,the direction of effects was as hypothesized.Thus,Hypotheses1–5are supported.However,the beta weights shown in Table1suggest that the?ve independent variables were not equally important in in?uencing respond-ents’trust decisions.Attractiveness of the acquiring?rm’s HR policies was given the highest weight,followed by friendliness of the takeover,interac-tion history,retained autonomy,and national cultural similarity.

In the third step,the three hypothesized interaction effects were entered as a block.Table1shows that this interaction block was statistically signi?cant (D R2?0.002,p o0.01)and that two of the three hypothesized interaction effects were statistically signi?cant.However,the interaction block only explained an additional variance of0.2%beyond the main effects,which suggests that the interaction effects are too small to be theoretically or practically meaningful.Hence,Hypotheses6–8received no support.

DISCUSSION

Prior research on post-acquisition integration has paid little attention to the factors that in?uence the development of trust between the members of the acquiring?rm and those of the target?rm.We developed and tested a model that describes how various aspects of the takeover situation and the integration process interactively in?uence target?rm members’trust in the acquiring?rm’s management.As hypothesized,the results of a policy-capturing study suggest that takeover friendliness,national cultural similar-ity,interaction history of the acquiring and target?rms,retained autonomy, and attractiveness of the acquiring?rm’s HR policies all affect individuals’trust decisions in the aftermath of a takeover.Speci?cally,we found that members of the target?rm tend to have greater trust in the acquiring?rm’s management when the mode of takeover is friendly than when it is hostile; when there is a higher degree of national cultural similarity,(i.e.,when it is a

domestic acquisition than when it is a cross-border acquisition)when there is an interaction history between the members of the acquiring and target ?rms than when there is no history of collaboration;when the acquiring ?rm is likely to allow the target ?rm to retain its own culture and much of its autonomy than when it is likely to impose its culture,practices,and systems on the target ?rm during consolidation of the two organizations;and when the acquiring ?rm’s HR policies are perceived to be bene?cial than when they are perceived to be employee-unfriendly.

While the ?ndings suggest that each of the ?ve factors can undermine or enhance trust in the aftermath of an acquisition,the hypothesized trust antecedents do not seem equally important in in?uencing target ?rm mem-bers’trust in the acquiring ?rm’s management.Attractiveness of the ac-quiring ?rm’s HR policies appears to be by far the most powerful predictor of trust.This ?nding is consistent with prior research that has shown that the way employees react to a takeover depends primarily on the personal bene?ts and losses attributed to it (Cartwright &Cooper,1996;Graves,Table 1.Results of Moderated Regression Analysis.

Independent Variable

Trust b

D R 2Step 1:Respondent dummy variables

0.235???Step 2:Main effects

Friendliness of the takeover

0.252???National cultural similarity

0.069???Interaction history

0.240???Retained autonomy

0.126???Attractiveness of acquiring ?rm’s HR policies

0.464???0.343???Step 3:Interaction terms

National cultural similarity ?friendliness of the takeover

0.037National cultural similarity ?retained autonomy

à0.051?Retained autonomy ?attractiveness of acquiring ?rm’s HR

policies

0.046?0.002??Total model R

20.580Total model adjusted R 2

0.551

Note:N ?3184(199respondents ?16decisions).?p o 0.05;??p o 0.01;???p o 0.001.GU

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Antecedents of Target Firm Members’Trust83 1981;Schweiger&Walsh,1990).It is also consistent with recent research on organizational trust suggesting that employees’trust in management is rooted in the fairness and support they perceive in the organization’s HR policies and practices(Whitener,2001,2005).In takeovers,not only do the acquiring?rm’s HR policies and practices–especially those related to compensation and bene?ts and promotions–have a major impact on ac-quired employees’lives and careers,they also reveal much about the ac-quiring?rm management’s fairness,concern for employees,etc.–and,thus, its trustworthiness.Perhaps for the same reason,the mode of takeover–whether the social climate surrounding the acquisition is friendly or hostile–was found to be another key factor in?uencing target?rm members’trust in the acquiring?rm’s management.

Among the?ve aspects of the takeover situation and integration process that were hypothesized to in?uence trust,cultural similarity had the least impact on respondents’trust decisions.This?nding contradicts the‘‘cul-tural distance’’hypothesis,but is consistent with recent studies that have shown that cultural differences do not always have a negative effect on post-acquisition performance and other integration outcomes(e.g.,Morosini, Shane,&Singh,1998;Olie&Verwaal,2004;Very,Lubatkin,&Calori,1996). For example,a study of acculturative stress in cross-border M&A by Very et al.(1996)found that cultural differences elicited perceptions of attraction rather than stress,depending on the nationalities of the buying and acquired ?rms.Thus,the‘‘cultural distance’’hypothesis is too simplistic an explana-tion for the cultural processes involved in integrating merging or acquired organizations.Whether cultural differences have a positive or a negative impact on target?rm employees’reactions is likely to depend on the nature and extent of cultural differences,the integration approach taken,the inter-ventions chosen to avoid or manage culture clashes,and a variety of other factors(Schweiger&Goulet,2000;Stahl&Voigt,2005;Weber et al.,1996). LIMITATIONS AND IMPLICATIONS FOR RESEARCH This study has provided some new insights into the antecedents of target ?rm members’trust in the acquiring?rm’s management.However,there are several possible limitations that need to be discussed,as well as avenues for future research.

Perhaps the most critical question is related to the external validity of the ?ndings,i.e.,whether the results of policy-capturing research can be gen-eralized to real-world situations.This study used hypothetical scenarios to

simulate individuals’trust decisions in a variety of takeover situations.Al-though doing so was necessary to preserve the experimental control required to test the hypotheses advanced in this study,the responses to hypothetical takeover scenarios may differ from organizational members’reactions to similar actual situations.However,several researchers have found that re-sults from contrived situations used in policy capturing studies are not sig-ni?cantly different from results from real-world situations,particularly when decision makers are experienced in the types of decisions they are being asked to make (Brown,1972;Pablo,1994).Nevertheless,more em-pirical research,using alternative methodologies such as in-depth interviews and large-scale survey designs are needed to substantiate the critical role that the proposed trust antecedents play in the post-acquisition integration process,particularly in the development of trust between the members of the acquiring and target ?rms.

Another possible limitation to the external validity of this study should be noted.Simulation of individuals’decision processes through policy captur-ing allows for evaluation of how respondents use a limited set of information to make decisions in a speci?c domain.Since the purpose of our study was to examine the relationships proposed by a particular theoretical model (Stahl &Sitkin,2001,2005),we included only variables suggested by this model as important antecedents of target ?rm members’trust.To the extent that additional variables outside this theoretical model have a signi?cant in?u-ence on respondents’trust decisions,the decision models obtained through the policy-capturing technique in this study are likely to be incomplete.

IMPLICATIONS FOR PRACTICE

In corporate acquisitions,special emphasis is usually placed on the strategic and ?nancial goals of the transaction,while the ‘‘human factors’’do not receive as much attention.The ?ndings of this study suggest that the ‘‘softer,’’less tangible psychological,social,and cultural aspects of acqui-sition management play a key role in the post-acquisition integration proc-ess.Aspects of the takeover situation and the acquirer’s integration approach such as hostile takeover tactics,lack of familiarity with the tar-get ?rm,and autonomy removal can be obstacles to achieving integration bene?ts because they undermine trust.Hence,the sociocultural and people implications have to be considered at an early stage in the acquisition process,in the evaluation and selection of a suitable target,as well as the integration planning process.

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Antecedents of Target Firm Members’Trust85 Consistent with a‘‘process perspective’’on acquisitions(Haspeslagh& Jemison,1991;Hunt,1990;Jemison&Sitkin,1986),the?ndings of this study suggest that acquisition outcomes such as employee trust and commitment depend on the ability of the acquirer to manage the integration process in an effective manner.While strategic and?nancial factors such as buyer strategy, acquisition premium paid,etc.,determine the value creation potential of an acquisition,the acquirer’s integration decisions affect the employee reactions to the takeover and thus the extent to which that potential is realized.On the part of the acquiring management,an awareness of the tendency to remove more autonomy from the target?rm than might be necessary in order to achieve projected synergies,and resisting this tendency,is likely to have a positive impact on trust.Carefully setting the appropriate tone during and after the negotiations,providing opportunities for interaction between mem-bers of the acquiring and the target?rms,and introducing employee-friendly HR policies and practices can also go a long way toward building a rela-tionship that is based on trust rather than domination and control.

ACKNOWLEDGEMENT

The authors gratefully acknowledge?nancial support for the project‘‘Man-aging Sociocultural Integration in Mergers and Acquisitions’’(INSEAD research grant]2010-468R).

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