The Politics of Acquisitions : An Upper Echelons Perspective

Lou, Bowen and Shepherd, Neil and Strobl, Andreas and Bauer, Florian (2022) The Politics of Acquisitions : An Upper Echelons Perspective. Academy of Management Proceedings, 2022 (1). ISSN 0065-0668

Abstract

Acquisitions are among the most complex, exacting, intractable, and high stakes decisions faced by Top Management Teams (TMTs). Consequently, they are inherently political in nature—provoking conflicting viewpoints and power struggles among executives. While political behavior is a central construct in organizational theory, and despite widespread acknowledgement of its inevitable presence in Mergers and Acquisitions (M&A) decision making, there is a shortage of theory and evidence concerning its antecedents and consequences. Consequently, to address this gap, we draw upon the upper echelons literature to develop and test a theoretical model of political behavior in M&A decision making. Focusing on the psychological context surrounding the TMT, we theorize that TMT cognitive diversity fuels political behavior which in turn undermines acquisition performance. Critically, we also theorize that TMT cohesion serves as the central generative mechanism enabling acquirers to counteract the effects of TMT cognitive diversity and thereby dampen damaging political behavior. We test our theoretical model using a field sample of 109 acquisitions in the UK, utilizing direct psychometric measures validated with objective secondary performance data. The results support our theory, and TMT cognitive diversity leads to political behavior during M&A decision making. TMT cohesion reduces political behavior, it also interacts with cognitive diversity, and contrary to our theory, cognitive diversity appears to weaken the benefits of cohesion. Based on these findings, we discuss the important theoretical and practical implications