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Despite Efficiencies, M&As Reduce Firm Value by Hurting Customer Satisfaction

Despite Efficiencies, M&As Reduce Firm Value by Hurting Customer Satisfaction

JM Insights in the Classroom

Teaching Insight:

These slides walk students through the importance of examining mergers and acquisitions, a very popular corporate strategy to grow and gain synergies, from a marketing-angle.

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Related Marketing Courses: ​
Marketing Strategy

Full Citation: ​
Umashankar, Nita, Cem Bahadir, and Sundar Bharadwaj (2021) “Despite Efficiencies, M&As Reduce Firm Value by Hurting Customer Satisfaction,” Journal of Marketing.

Article 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.

Special thanks to Holly Howe (Ph.D. candidate at Duke University) and Demi Oba (Ph.D. candidate at Duke University), for their support in working with authors on submissions to this program. 

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