Chart of the Week August 12, 2022: Political ideology and the odds of US M&A announcement

Summary:

This graph is taken from a study about US mergers and acquisitions, also featured in the Harvard Business Review and MIT Sloan Management Review. This study hypothesizes and finds that the probability of announcement of an M&A increases when merging firms have more similar organizational political ideologies*, because organizations drift toward member homogenization as individuals are attracted to similar others. Additionally, this relationship is strengthened the higher the human capital intensity of the merged firms. The graph shows that the positive relationship between the similar organizational political ideologies of the merging firms and the probability of announcement of a merger will be strengthened when there is higher human capital intensity in the merged firms. This is because managers are more fearful that their employees, being highly mobile knowledge workers, can take their knowledge with them to another firm if their preferences are not attended to. Similar political ideology with their merger counterpart is important to employees because of person-organization fit. Thus, to the extent that managers are aware that employees draw on political ideology to identify with their organization, and that this factor increases employee retention, when the merged firms have greater human capital intensity managers are more likely to announce mergers with targets with similar political ideology.

*In the United States, the dominant way of classifying political ideology is in terms of either liberalism or conservatism, which is in line with the aims of the two primary political parties- Democrat or Republican (Chow et al., 2021).

Article By CHOW Yi Lin, Dawn

Graphic By Yixuan GE

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