Master Thesis in Business Administration Title:           Due Diligence in Cross-border M&As - Top management team´s human capital affecting speed of due diligence process Authors:       Jürgen Sabernik and Matti Salakka Tutor:          Tommaso Minola, Ph.D. Date:           2018-05-21 Key Terms:   Mergers & Acquisitions, Due Diligence, Speed, Cross-border, Human Capital, Top Management Team   Abstract Problem:       Globalization and market saturation are a constant influence for all the participating businesses in the markets. Therefore, companies of all various sizes are considering mergers & acquisitions to either consolidate the market, use it as a market growth opportunity or entry strategy into a new market or even country. Due to these multidimensional processes, many of the attempted M&As fail. Practitioners tend to focus only on financial or legal characteristics when considering to acquire and afterwards merge the target company, which results into failed M&A process. Accordingly, multifaceted phenomena such as M&As should not be only assessed on two dimensions, they should rather be evaluated as a whole with a dynamic due diligence process along the M&A. Purpose:     The purpose of this thesis is to investigate the speed of dynamic due diligence process in cross-border mergers and acquisitions and what effect the human capital of an organization’s top management has on it. Method:     For this thesis, we utilize a qualitative research based on a multiple case study approach. Therefore, we investigated four case companies within different industries in the Finnish context. The primary empirical data was collected through semi-structured interviews with guidance from a topic guide, in addition we also used company information such as annual reports or the company websites as secondary data. The derived statements are based on the findings, which were categorized and afterwards adopted as a basis for the analysis. Findings:       The findings of this thesis are that the human capital factors affect the speed of the due diligence process in cross-border mergers and acquisitions via four themes; (1) business environment, (2) market knowledge, (3) inter-organizational leadership and (4) individual skills. The themes can affect the speed directly, but more importantly through the interplay of different themes.  Conclusion:    In conjunction with various authors mentioned in this thesis, we also come to the conclusion that a dynamic due diligence process is contributional in order to grasp the multidimensionality of mergers & acquisitions. Additionally, the context where the individual M&A is happening is playing a major role within the evaluation process. Hence, top management team’s human capital has an impact on the speed of dynamic DD process in cross-border M&As via the four above mentioned themes.

A volatilidade tem se mostrado como um dos mais relevantes conceitos nos estudos de finanças, pois está associada diretamente ao conceito de risco. A volatilidade pode ser influenciada por diversos fatores como, por exemplo, eventos corporativos. Dentre esses eventos, destacam-se as fusões e aquisições (F&A), as quais se apresentam como um contexto interessante para realização de estudos voltados para a observação de possíveis mudanças no comportamento da volatilidade quando da sua ocorrência. Dessa forma, o objetivo do estudo foi investigar o comportamento da volatilidade dos retornos das ações de empresas que passaram por processos de fusão e aquisição, compreendendo tanto o seu anúncio quanto a sua conclusão. Após a adoção de critérios de elegibilidade, foram estudados 33 eventos relativos a 23 ativos de 19 empresas. A metodologia para a estimação da volatilidade compreendeu principalmente o uso do modelo GARCH (Generalized Autoregressive Conditional Heteroskedasticity), em um procedimento similar a um estudo de evento. Como resultado, observou-se que, de uma forma global, tanto o anúncio da operação de F&A quanto a sua conclusão não produziu impacto na volatilidade. Adicionalmente, ao se observar o impacto no risco, medido pelo beta, observou-se que o anúncio produziu impacto no beta de 30 dias, enquanto a conclusão da operação proporcionou mudança no beta tanto de 30 quanto de 60 dias. No entanto, ao se tentar relacionar os resultados com algumas características dos eventos (como: tipo da ação, setor de atuação, tipo da operação, papel desempenhado na operação e tempo transcorrido entre o anúncio da operação e a sua conclusão) foi observado que estas não possuíam nenhum poder explicativo. / Volatility has been considered a relevant concept in finance due to its association with the risk concept. Volatility can be influenced by many factors such as corporate events. Among these events, we can emphasize mergers&acquisitions (M&A), that has become an interesting context for studies about the volatility behavior and its changes. Thus, the present study aimed to investigate the behavior of the volatility of stock returns of companies that participated of mergers&acquisitions during the the announcement and the conclusion periods. It was determined eligibility criteria that result a sample with 23 stocks from 19 companies. The methodology for volatility estimation involved mainly the GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model and the procedure was similar to event study. The results reveal that, in general, the announcement of M&A and its conclusion had no effects on the volatility. In addition, the observation of the risk impact, measured by beta, revealed an effect on the 30 days’ beta and the conclusion caused an impact on the 30 and 60 days’ beta. Finally, the observation about possible relationship between results and characteristics (like stock type, sector, event type, role played in the event and time passed between announce and conclusion) revealed no explanation power.

The focus of this doctoral research is on advancing knowledge of what managers can do to address the issues of corporate cultural differences in mergers and acquisitions (M&A). Despite decades of experience, the rate of M&A failure remains high globally. The root causes of these failures have pointed to inadequate strategic deal theses, excessive purchase prices paid, and poor pre- and post-integration management. Human and cultural factors have also been blamed for these failures. Significant research effort has been expended in raising the importance of human factors and the issue of culture fit in M&A. However, research results have remained ambiguous. Extant organisational M&A culture research has largely focused on examining the role of culture in M&A and its impact on M&A performance. How to address organisational culture differences in M&A is much less studied. Only a small handful of scholars, consultants and practitioners have attempted to prescribe corporate culture alignment guidelines that are either too generic or prescriptive. Managers remain unclear as to how to manage cultural differences in M&A.The research sets out to address how managers can effectively moderate the effects of corporate cultural differences on M&A performance in domestic M&A. It aims to develop a practical M&A corporate culture alignment model for managers tasked with addressing the effects of corporate cultural differences in M&A. It also focuses on addressing the issues of single-layered acculturation of corporate cultures in isolation from the perplexing issues of double-layered acculturation between national and corporate cultures in cross-border transactions. The researcher adopted a qualitative case study research method to deliver on the research objectives within the doctoral research timeframe. He selected a sample of four domestic M&A case studies in Thailand where he is located. Each case study was free of issues related to national cultural differences. The researcher was able to draw rich information and insights from interviewing a total of 50 senior executives, middle managers and staff across case studies. The main research findings provide managers with an improved understanding of the roles of corporate culture on M&A performance and a practical and repeatable five-phase M&A corporate culture alignment model (‘5-D’). The model offers a planned step-by-step change approach, key objectives, and suggested tools and templates that help guide managers to effectively moderate the effects of corporate culture differences in domestic M&A from pre-to post-M&A stages. The model also provides strategic choices and implementation guidelines for managers to consider in addressing the emergent nature of acculturation and change in M&A integration situations. The effectiveness of this exploratory model shall be further tested in future qualitative and quantitative studies. The empirical testing of the research recommendations has already begun with a number of recent M&A projects in Asia outside of this research.

The thesis generally talks about mergers & acquisitions, discussing definitions, differences and reasons behind an M&A. I have analyzed what is a merge and what is an acquisition. Why companies combine themselves through an M&A. What are advantages and disadvantages about an M&A. After that the work is followed by a case study, which focuses on Fiat and Chrysler. With regards to this point, the case touches all the steps of the agreement between the two car automakers providing numbers, percentages and graphs to better explain how the agreement was made. After having spoken about the figures of the deal I have analyzed I went through all the steps of the acquisition showing also tables. I went through all important dates of the acquisition going deeply in the heart of the topic. I also analyzed why Fiat acquired Chrysler and why Chrysler felt down in a bankruptcy. Finally I have studied the today's situation of the two car automakers showing their actual trend on the automotive market.

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Background: In recent years, there has been an increasing recognition of the significance of mergers and acquisitions (M&As) involving family businesses, highlighting their pivotal role in the business landscape. Notably, in the M&A literature, the issue of employees’ trust in the organization emerges as a crucial component in facilitating a successful post-M&A integration. However, existing theories of organizational trust in the post-merger integration process, where the outcome of M&As is ultimately determined, may only partially apply to the distinctive dynamics inherent in family business M&As. This divergence can be attributed to the unique characteristics displayed by family businesses. Hence, this thesis aims to address this research gap by comprehensively examining how organizational trust can be applied in the context of family business M&As.  Purpose: Our research aims to explore how organizational trust influences the post-merger integration process of family businesses. The objective of this dissertation is to offer insights to family businesses concerning M&A endeavors, specifically focusing on the post-merger integration phase, by highlighting the crucial role of organizational trust and its consequential influence on the overall M&A outcome. As a result, the fundamental research question of this thesis is as follows: “How does organizational trust influence the post-merger integration process of family businesses?”  Method: As for the methodology, by leaning towards internal realism as our ontological standpoint and social constructionism as our epistemological standpoint, a more comprehensive understanding of organizational trust in the post-merger integration process of family businesses is achieved. This qualitative study applies the abductive approach as it facilitates the exploration of the phenomena in question and the modification of existing theories by combining previously established knowledge and new observations. A multiple case study is conducted, and data is collected through 12 semi-structured in-depth interviews to reach our aim.  Conclusion: Through combining existing literature and qualitative data, a comprehensive framework on organizational trust is created that is specifically tailored to the context of family businesses that have undergone an M&A and that highlights the significance of the following elements of organizational trust: ability, openness, visibility, and benevolence. This framework holds considerable value as it not only entails visibility as an element, which is novel to the literature, and represents, hence, our main contribution, but it also elucidates how family businesses can leverage their unique characteristics to effectively preserve and nurture employees’ organizational trust even in the aftermath of M&As. By recognizing and harnessing their unique attributes, such as longevity and emotional involvement, family businesses can transform these inherent qualities into strategic assets that sustain employees’ organizational trust, ultimately facilitating a smoother post-merger integration process and an overall successful M&A.

Non-deal roadshows (NDR) are privately held one-on-one meetings between the buy-side of financial institutions and firm management. Using a novel dataset of these meetings, I examine the effects that NDR meetings have on the outcomes of two important corporate events: seasoned equity offerings (SEOs) and mergers and acquisitions (M&As). I also study the potential implications of the information content in NDRs on the behavior of stock returns following earnings announcements, which has been the subject of much academic work. I structure the dissertation in three essays. In the first essay, I examine the relationship between NDR activity and the underpricing of SEOs. I find that NDRs are associated with lower SEO underpricing. This association is stronger for firms with infrequent NDR activity, for smaller firms, and for firms with higher analysts' forecast errors. These findings suggest that NDRs reduce the level of asymmetric information between firms and investors, which results in a lower cost of raising equity. In Essay 2, I investigate whether the occurrence of NDR meetings affects post-earnings-announcement drift (PEAD). I find that PEAD declines after NDR activity when the most recent NDR meeting occurs within one month before the earnings announcement. This decline is most pronounced among smaller firms, firms with high idiosyncratic volatility, and firms with Friday earnings announcements. These findings suggest that NDRs are mechanisms to convey earnings-specific information about forthcoming earnings. In the third essay I explore the relationship between NDRs, the medium of exchange used in M&As and the value created by this important corporate event. I show that NDR activity is important to understand the cross-sectional variation of the excess returns around M&As, and the bid premium. NDRs are also relevant to understand the medium of exchange. This relevance of NDR is more pronounced when the firms involved have higher levels of asymmetric information. My findings suggest that NDRs convey relevant information about acquiring and target firms, and this information affects the financing of M&As and the value created by these combinations. Taken together, the results reported in this dissertation highlight the relevance of the NDR as a mechanism to reveal information.

This dissertation empirically explores the facets of corporate innovation in the firm and the ultimate effects on firm value. In the first chapter I identify firm innovation as a new channel by which employee treatment affects firm value. Growth and innovation incentive theories support positive effects of “good” employee treatment on innovation. Alternatively, entrenchment theory suggests such treatment will lead to complacency and shirking, hence deterring innovation. These opposing views merit investigation since in the “new economy”, human capital is increasingly essential to firm value and the growth and success of a firm has become more reliant on corporate innovation. Using the KLD Research & Analytics, Inc. SOCRATES database and newly acquired patent/citation data, I find an overall significant positive relationship between positive employee treatment and innovation quantity (patents) and quality (citations per patent); both measures are significantly correlated to firm value in the literature. Furthermore, I find that favorable employee treatment improves innovation focus – innovation projects more related to firms’ core business. These findings, robust to an alternate data source and endogeneity concerns, are consistent with the theories of growth and innovation incentive and suggest corporate innovation represents a channel by which employee treatment enhances firm value. In the second chapter I use the context of mergers & acquisitions (M&A) to investigate the effect of firm innovative ability. Acquirer announcement returns in M&A are known for being low on average; however, recent studies indicate greater abnormal announcement and long-run returns to firms motivated by the acquisition of innovation. Although acquiring innovation is an important motive for M&A, prior studies have ii mostly focused on the characteristics of target firms. In this paper, I explore the effect of acquirers’ innovative abilities in the M&A transaction. I propose that acquirer’s ex-ante ability to transform internal and external innovation investment into a tangible valued output (i.e. sales or profitability) is subject to asymmetric information. I apply a unique measure of innovative ability to explain the cross-sectional variation in acquirer returns for mergers and find a positive relation between acquirers’ innovative abilities and their abnormal returns around M&A announcements. I further discover that greater CARs in high innovative ability acquirers only exist in a subsample of M&As in the later life cycle of firms. For early merger events (the first three M&As after IPOs), acquirers’ innovative abilities are not associated with significantly larger announcement returns, suggesting an altered market perception of the value impact of acquisitions of innovation and innovative ability. / Business Administration/Finance

This paper-based dissertation comprises five essays dealing with corporate sustainability and digital reporting and is structured in six chapters. The first chapter is the introduction and provides an overview of the structure and aims of the dissertation, lays out the contribution of the work, and introduces the five manuscripts. The second chapter, respectively the first manuscript, deals with the consequences of mandatory sustainability reporting in Europe. Specifically, the study deals with the question whether Directive 2014/95/EU has achieved its objectives of increasing reporting quantity and quality. In the third chapter, the sustainability reports of the largest European firms are analyzed using computer-aided text analysis. This study investigates whether and how external assurance of sustainability reports is beneficial from the viewpoint of report transparency, which is proxied by reporting scope, optimism, and readability. In the fourth chapter, the role of corporate sustainability in the context of M&A transactions is examined, precisely whether sustainability influences the premia paid in M&A transactions. The fifth and the sixth chapters center around the voluntary usage of online financial reporting (OFR) in Europe. While the fifth chapter is concerned with the usage and empirical determinants of OFR, the analysis in the sixth chapter examines the impact of OFR on the financial market, specifically on analyst following and stock liquidity.

Merger and Acquisition (M&A) is a widely adopted strategy in today's corporate landscape for acquiring a competitive edge. Despite its prevalence, M&As frequently encounter setbacks when the integration of existing IT systems is neglected. Therefore, undertaking a digital transformation becomes crucial to ensure the success of M&As. As a result of the merge, digital transformation brings about a significant shift in the way employees work, necessitating their acceptance and adaptation to the change for the transformation to be successful. This research investigates this phenomenon by conducting a case study on a recently merged organization consisting of five countries that employs digital transformation to create a cohesive work environment. From a leadership and communication perspective, this study explores soft factors that, in an early stage, can aggravate a digital transformation in a merged organization according to employees individual understanding and point of view. Specifically, the study identifies soft factors in the early stages that could aggravate the execution of the digital transformation and investigates how management and communication can address the soft factors. The study involved conducting 17 interviews with employees within the chosen organization. The data was analyzed using an analytical framework that was created by the authors called "Three Aspects During a Change Process at an Early Stage". The study identified 12 factors in the shape of soft values that could make the execution of the digital transformation more difficult and demonstrated that these factors can be addressed using the "Three Aspects During a Change Process at an Early Stage" analytical framework from a management and communication perspective. / M&A (Mergers & Acquisitions) är en strategi i dagens företagslandskap för att erhålla konkurrensfördelar. Trots dess utbredning stöter M&As ofta på hinder när integreringen av befintliga IT-system försummas. Därför blir genomförandet av en digital transformation avgörande för att säkerställa en M&As framgång. Som ett resultat av sammanslagningen kan digital transformation innebära en betydande förändring i hur anställda arbetar, vilket kräver deras acceptans och anpassning till förändringen för att transformationen ska bli framgångsrik. Denna studie undersöker detta fenomen genom att genomföra en fallstudie på en nyligen sammanslagen organisation i fem länder som använder digital transformation för att skapa ett enhetligt arbetssätt. Från ett lednings- och kommunikationsperspektiv undersöker denna studie mjuka värden som i ett tidigt skede kan komma att försvåra en digital transformation inom en organisation som genomgått en sammanslagning genom att tolka och förstå anställdas individuella uppfattningar och synsätt. Studien identifierar mjuka värden i ett tidigt skede som kan försvåra genomförandet av den digitala transformationen och undersöker hur ledning och kommunikation möjligtvis kan bemöta dessa faktorer. Studien involverar genomförandet av 17 intervjuer med anställda inom den valda organisationen. Empirin analyserades utifrån analysmodellen “De tre aspekterna under en förändringsprocess i ett tidigt skede", framtagen av författarna. Studien identifierade 12 faktorer, i form av mjuka värden, som kunde försvåra den digitala transformationen och visade att dessa faktorer kan hanteras med hjälp av analysmodellen utifrån ett ledarskaps- och kommunikationsperspektiv.