Merger theories from the
Brouthers et al article
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What is theory?
• If X then Y (a hypothesis)
• Example
• Business mergers will lead to better
shareholder returns
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Theory and practice
• Theory – if X then Y
• Practice – what companies actually do
• Applying theory to practice
• What does the theory predict?
• Does it appear to work in practice?
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If most mergers fail, why are they
so popular?
Brouthers, K. D., van Hastenburg, P. and van den
Ven, J. (1998) ‘If most mergers fail why are they
so popular?’, Long Range Planning,Vol 31, No 3,
pp. 347-353
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Empirical evidence
• Empirical (real world) evidence suggests that
for acquiring firms, mergers are not very
successful
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Theory statements from the
Brouthers article
• A number of scholars₃ have suggested that
this difference between action (the continued
pursuit of mergers) and performance (the low
rate of ‘successful mergers) may be caused by
managers pursuing goals other than
shareholder wealth maximization
(theory hypothesis – X may be caused by Y)
Use Harvard, not ‘Oxford’ referencing
• 3 – e.g., Berkovitch, E. and Narayan, M.P. (1993) ‘Motives for takeovers: an
empirical investigation’. Journal of Financial and Quantitative Analysis
23(3) pp 347-362.
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Theory implications from the
Brouthers article
• If ‘true’, The implications of this would be that
empirical research is looking for the wrong
things – researchers are using an inaccurate
measure of performance
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Another theory from the Brouthers
article
• The apparent low number of ‘successful’
mergers may be due to managers being overly
optimistic, thinking that they have learned
from past merger mistakes while in fact they
are making the same mistakes
(Theory hypothesis – X may be caused by Y)
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Applying theory (model) to
practice
• Brouthers et al (1998) use a multiple motive model to
measure merger performance, which recognises that
managers may have multiple motives for merger
activity. In the case of the acquisition of Home Retail
Group plc by Sainsbury plc, it can be seen
that………………………………
• Compare and contrast what Sainsbury’s actually did
(empirical evidence) with the theories in the
Brouthers article. Can you see any connections
between theory and practice? In what ways? Why?
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Evaluating theory
• From the Sainsbury’s empirical evidence, can
you say that Brouthers et al are ‘right’, or that
their theory is a good one in terms of its ‘fit’
with this real world case? Can you see ways
in which the merger theories they discuss are
not appropriate to the Sainsbury’s case?
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Evaluating research
• In their research on Dutch merger activity, Brouthers
et al (1998) found that the most important merger
motive was for economic reasons. However, in the
Sainsbury’s case…………. (contrast)
• In their research on Dutch merger activity, Brouthers
et al (1998) found that the most important merger
motive was for economic reasons. Equally, in the
Sainsbury’s case…………. (comparison)
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The argument sandwich
Conway et al (2005) suggest that how employers, supervisors
and managers behave on a day-to-day basis is not determined
by a legal contract but by an implicit psychological contract.
However, Cullinane et al (2006) maintain that the concept
itself is too vague to be useful in its current form, suggesting
that individual employees will have individual expectations,
rather than a general sense of obligation. Although from the
literature, there appears to be a general consensus that the
psychological contract deals with implicit reciprocal promises
and obligations, there appears to be confusion in the
literature over the role of expectations as opposed to
obligations.
argument counter-argument your own opinion
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Planning from paragraph level is essential for
good opinion (argument) structure
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Coherent Paragraphs?
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Checking and editing your work
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