. International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S7) • 2016 81 International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2016, 6(S7) 81-85. Special Issue for "International Soft Science Conference (ISSC 2016), 11-13 April 2016, Universiti Utara Malaysia, Malaysia” Relationship Engagement in Mergers and Acquisitions through Collegial Leadership Mohd Haniff Jedin1*, Norsafinas Md Saad2 1School of International Studies, International Business Department, Sintok 06010 Kedah, Malaysia, 2School of International Studies, International Business Department, Sintok 06010 Kedah, Malaysia. *Email: mdhaniff@uum.edu.my ABSTRACT Many research in M&A focused on the deal processes, little has been said about how acquirer and the target firm engage in their relationship building processes. Existing researches did not clearly demonstrate the importance of the relationship among M&A players in the amalgamation processes between an acquirer and the acquired firm. Thus, this paper attempts to highlight the influence of collegial leadership in initiating relationship engagement in the post M&A integration. Result shows that collegial leadership significantly influence the relationship engagement in M&A. Keywords: Mergers and Acquisitions, Relationship Engagement, Collegiality JEL Classification: G34 1. INTRODUCTION Mergers and acquisitions (M&As) is a business phenomenon that is very commonly used as corporate development strategies. This is not a new phenomenon but as an organizational growth approach which has been used extensively as a means to international expansion by many multinational corporations. M&A offers value-creation opportunities through combining complimentary assets and liabilities from firms with different backgrounds. M&A also has disadvantages that are attributed to hubris, managerial incompetency in achieving projected economies of scale and the firms being strategically mismatched (Sinkovics et al., 2015). Lack of communication between top management and other managerial positions is also believed to add more hurdles to the amalgamation process (Sirower and Lipin, 2003). In fact, previous studies have confirmed that almost 50-70% of M&A failed to create value for the acquiring firm’s shareholders, although at first glance the strategy would seem to be the most perfect way to improve a firm’s value and enhance its capabilities through better access to resources (Tetenbaum, 1999). This may be due to the nature of M&As that is likely to bring about complex events and many drawbacks compared to the advantage in organizational environments, especially post- integration (Larsson and Finkelstein, 1999). One of the major challenges of the M&As integration process is the coordination and information flow in the merged difficulty involved in developing and exploiting skills and acquiring knowledge (Meschi and Metais, 2006). Furthermore, lack of compelling strategic rationale and unrealistic expectations of the possible synergies also create significant challenges. One of the ways to generate a better communication bridge is developing an integration infrastructure that has clear roles, responsibilities and expectations (Galpin and Herndon, 2007). By adapting the resource-based view and social capital theory as the framework foundation, this paper attempts to raise this issue on how to develop better relationship engagement among the acquirer and the acquired firms. Hence, this research seeks to initiate this line of enquiry by investigating how the managers of the acquirer and the acquired firms can work together in harmonies by adapting the collegiality leadership styles. Jedin and Saad: Relationship Engagement in Mergers and Acquisitions through Collegial Leadership International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S7) • 201682 2. LITERATURE REVIEW 2.1. Collegiality Leadership in M&A Although, collegiality concept is familiar in academic world but there are unknown interpretations in applying this concept in an organization. In organization, collegiality approach seems to be co-existing but more in competition wise which is rather different from the academic world (Singh, 2013). However, the competitive environments is controllable if the organization is equip with strong believe in a particular vision and objective. According to Freedman (2009), collegiality approach works in many ways from cooperative to governance committee activities which highlight a concept of shared power and authority among colleagues. In fact, collegiality in M&A is an ideal initiative in order to develop sense of engagement among the staff and superior of the acquired firm and the acquirer. Most likely, the acquirer will appoint their managers to head the position in the acquired firm. In this situation, a role of collegiate and empathy would be advantage in order for both staff to improve their relationships and at the same time enhance the productivity of the combined firms. By applying the concept of collegiality engagement in M&A integration, the staff would be able to be more lateral rather than high in hierarchical which improve in the decision making process in an organization. In addition, this concept could avoid conflict and the feeling of foreignness among the staff that attached with acquired and acquirer firms. Therefore we propose the following hypothesis which considers collegiality as one of the factors that could facilitate relationship effectiveness among the staff in the M&A integration initiatives. Figure 1 shows the conceptual framework of collegiality leadership and relationship engagement in M&A. H1 (+): The higher the initiative of collegial leadership, the better the relationship engagement between acquirer and the acquired firm. 2.2. Effectiveness in Relationship Engagement Another important outcome is the close relationships between the staff and managers of both firms (acquiring and acquired). The relationships between the managers are essential to avoid misunderstandings in communications and above all to ensure that the M&A integration activities are kept on track in order to allow an outstanding M&A performance (Saunders et al., 2009). Additionally, this outcome would hopefully retain staff rather than encouraging them to move to other organizations. Losing these valuable managers are not the only a main concern but to lose the thinkers and hardworking managers would be a potential risk of losing key customers attached to those managers. Even though the acquirer and the target firm have combined, relationship gaps between them will still exist. Staff attached to the target firm will always be vulnerable to any decisions made by the new owner of the combined firm. Therefore, quick action is needed to bridge this gap by enhancing good relationships in order to avoid the loss of dedicated staff and, more importantly, to eradicate feelings of discrimination amongst the staff. The acquirer needs to develop good flows of communication by having a lot of informal discussions and disseminating new information to all staff including those from the acquired firm. This is important to avoid irrational rumors which could cause the collapse of the newly- built firm. This can be addressed by improving the commitment to business relationships so that associates are ultimately made to feel important. Relationship gaps among the managers of the acquired and the acquirer firm, particularly in M&As are not tangible, but need long term attention as relationships take time to develop. Therefore, we hypothesize: H2 (+): The greater the staff relationship engagement, the better the M&A performance. 2.3. M&A Performance Various studies that focus on M&A performance in the integration phase consider the perspectives of financial performance after the M&A (Homburg and Bucerius, 2006; Zollo and Meier, 2008). Another striking study by Colombo et al. (2007) highlights five components of M&A performance, namely market share, profitability, competitive positioning, market coverage and customer satisfaction. This study that looks at M&A performance. Hence, the present study attempts to highlight the role of collegiality leadership that could rejuvenate the relationship engagement in M&A integration thereby improving the M&A performance. 3. RESEARCH METHODOLOGIES 3.1. Sample and Measurement Scales A survey methodology was used in this study. We look at M&A transactions undertaken by the Malaysian firms, within the period of seven years (2006-2013). This period was also applied by Sinkovics et al. (2011) in the M&A studies. However, the scope of this study was limited to Malaysian contexts. The M&A cases were gathered from the Bursa Malaysia database. The minimum value for a cross border transaction was taken to be US$ 1 million, which is lower than the range proposed by Kogut and Singh (1988) of US$10 million. The rationale behind this was that the currency of countries such as Malaysia, and the size of firms involved in M&As in those countries, and thus most of the transaction values, tend to be lower than those in developed countries. This is also in line with information reported by the Bursa Malaysia, which stated that cases with a value less than US$1 million are usually acquisitions by internal shareholders and are not likely to involve departmental integration, particularly in M&As. Furthermore, if we had adopted a minimum value of US$ 10 million, the number of M&A cases in Malaysia would be less and we would also be less likely to obtain a good response rate. We only choose firms acting as acquirers in M&As. We do not restrict the sample to any specific sector or industry. Figure 1: Conceptual framework of collegial leadership Jedin and Saad: Relationship Engagement in Mergers and Acquisitions through Collegial Leadership International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S7) • 2016 83 Out of the 428 M&A cases listed in Bursa Malaysia from the period of January 2006 until Disember 2013, we identified 385 cases of Malaysian firms involved in M&As with a transaction value of above US$1 million. From this sample, we managed to collect 72 responses which is 18.7 % response rates. All of the items in the questionnaire were measured using 7-point Likert scales (1=Strongly disagree/very infrequent/very low, 7=Strongly agree/very frequent/very high, respectively. The measurement of the collegial leadership were adapted from Singh (2013). Next, we introduce one further variable in the effectiveness of the relationship engagement between the staff in the acquired and acquiring firm. This measurement was taken from Jedin and Saad (2012). The final measurement is performance outcomes, which were adapted from Sinkovics et al. (2015). 3.2. Reliability Test Table 1 depicts the results of the Cronbach’s coefficient alpha on each construct. Based on the recommendation for minimal acceptable reliability, the range of 0.6 and above is acceptable (Churchill and Peter, 1984; Nunnally, 1978). The result shows a positive response as all of the variables yielded scores 0.9 and above. 4. FINDINGS AND ANALYSIS 4.1. Industry Profile Overall, 16 groups were identified in the questionnaire along with a separate group titled “other industry.” “Other industry” is crucial as quite a few of the respondents who were not related to the above 15 named groups used this option. The industries involved in the survey, including those marked “other industry” are presented in Table 2. Out of 385 selected responses, we received 72 useable questionnaires. Majority of these firms are believed to engage in Banking and financial institutions, telecommunications, software and other services. 4.2. Respondents Profile Table 3 indicate majority of the respondents (70%) were at the level of top management: Director and senior management levels. Meanwhile, 29% represented at the middle range of managers. In terms of number of years for the establishment, most of the firms were in the category of “30 years and above.” This was followed by firms established for “21-30 years” (22%). The remaining firms were in the category “21-30 years” (21.1%) and “<10 years” (14.7%). Hence, it can be concluded that most of the Malaysian firms that were involved in this study were established and matured to penetrate local and overseas markets through the cross-border M&A penetration strategy. As for the number of employees, on average the sample firms employ 1500 staff. Half of the firms were in the range of “1,001-10,000” staff. 4.3. Data Analysis The data were analyzed using the partial least squares method (PLS), applied using the SmartPLS 2.0 M3 software package (Ringle et al., 2005). PLS was employed to analyze the path coefficient by looking at the multiple correlation coefficients (R² statistics) for all endogenous constructs (Henseler et al., 2009). PLS has been designed to cope with problems in data analysis related to small data samples and missing values (Hoyle, 1999). PLS path modeling methods have not only been applied previously in marketing and management but also recently to M&A (Cording et al., 2008). Item reliabilities were assessed by examining the outer loadings of each item (Table 4). Most of the outer loadings are above the recommended threshold of 0.7 (Henseler et al., 2009). However, some of the outer loadings are lower than the threshold. In PLS, convergent validity is assessed through internal consistency and discriminant validity (Fornell and Larcker 1981). In terms of discriminant validity, Fornell and Larcker (1981) suggest the use of average variance extracted (AVE), which should be greater than each of the variances shared between the constructs from the correlation matrix. Table 5 shows that all the diagonal elements in the correlation matrix (AVE) are Table 1: Reliability test Construct Item Measure Mean±SD N (72) Cronbach’s alpha Collegial relationships (six items) CL Communicating to each other 5.8194±1.32502 72 0.970 Responsive to each other 5.7222±1.34502 72 Concern for colleagues 5.4444±1.35198 72 Dynamic relationships 5.5278±1.22155 72 Motivating to each other 5.2361±1.35826 72 Passionate about your colleagues 5.0139±1.44858 72 Willing to share ideas 5.5417±1.36286 72 Willing to share skills 5.6111±1.28431 72 Effective relationship engagement RL We have spent our time and effort in developing and maintaining our relationship 5.8750±0.96323 72 0.927 We have productively develop our relationship 5.9167±0.91544 72 We have been satisfied with our relationship 5.5000±0.94943 72 We have carried out our responsibilities and commitments 5.6250±0.82969 72 M&A performance MAP Market share 5.9444±0.96252 72 0.904 Profitability (return on investment) 5.8611±1.05224 72 Competitive position 5.9583±1.08040 72 Market coverage 6.0000±0.97865 72 Customer satisfaction 5.9028±0.90631 72 M&A: Mergers and acquisitions, SD: Standard deviation Jedin and Saad: Relationship Engagement in Mergers and Acquisitions through Collegial Leadership International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S7) • 201684 greater than the off-diagonal elements in the corresponding rows and columns (variances shared). Figure 2 confirms the relationship between the collegial leadership and the relationship engagement. Similarly, the relationship also supported between relationship engagement and M&A performance. Hence hypothesis H1 and H2 were supported. Collegial leadership was found to have positive and significant influence on the effective relationship engagement (b = 0.795, P < 0.001). Another path that found to be significant and positively influence is relationship engagement between M&A performance (b = 0.614, P < 0.001). 5. DISCUSSIONS This study indicates that the collegial leadership has a highly significant, positive influence on the relationship engagement. In Table 2: Industry profile Valid Frequency Percent Valid percent Cumulative percent Clothing 1 1.4 1.4 1.4 Electronics 1 1.4 1.4 2.8 Automotive 1 1.4 1.4 4.2 Telecommunication 4 5.6 5.6 9.7 Software 4 5.6 5.6 15.3 Engineering 2 2.8 2.8 18.1 Household and consumers 2 2.8 2.8 20.8 Retail banking 8 11.1 11.1 31.9 Investment banking 2 2.8 2.8 34.7 Construction 3 4.2 4.2 38.9 Food/beverages 4 5.6 5.6 44.4 Chemicals 1 1.4 1.4 45.8 Oil and gas 1 1.4 1.4 47.2 Transport and logistics 1 1.4 1.4 48.6 Plantation and agribusiness 1 1.4 1.4 50.0 Utilities and infrastructure 2 2.8 2.8 52.8 Other industry 34 47.2 47.2 100.0 Total 72 100.0 100.0 Table 3: Respondents background Characteristics of respondents Frequency (%) Designation CEO/director level 26 (36.1) Senior general manager/head of division 25 (34.7) Middle-level manager/senior executive 21 (29.2) Industry experiences in M&A <10 years 11 (15.3) 11-20 years 18 (25) 21-30 years 21 (29.2) 31 years and above 22 (30.5) Number of employees <100 employees 5 (6.9) 101-1000 employees 21 (29.2) 1001-10000 employees 36 (50) 10001 employees and more 10 (13.9) M&A: Mergers and acquisitions, N=72 (number of respondent) Table 4: Internal consistency and outer loadings of items Internal consistency Outer loading Construct: Collegial relationship Composite reliability 0.979670 Cronbach’s alpha 0.970 AVE 0.857700 Communicating to each other 0.943469 Responsive to each other 0.923444 Concern for colleagues 0.937260 Dynamic relationships 0.965504 Motivating to each other 0.914749 Passionate about your colleagues 0.884830 Willing to share ideas 0.935568 Willing to share skills 0.901715 Construct: Relationship effectiveness Composite reliability 0.930466 Cronbach’s alpha 0.927 AVE 0.770366 We have spent our time and effort in developing and maintaining our relationship 0.912799 We have productively develop our relationship 0.928472 We have been satisfied with our relationship 0.850867 We have carried out our responsibilities and commitments 0.813773 Construct: Mergers and acquisitions performance Composite reliability 0.928835 Cronbach’s alpha 0.904 AVE 0.725675 Market share 0.838345 Profitability (return on investment) 0.872657 Competitive position 0.916657 Market coverage 0.940020 Customer satisfaction 0.663421 AVE: Average variance extracted Table 5: Correlations and discriminant validity Latent variables 1 2 3 1. Collegial relationships 0.926121 2. M&A performance 0.650114 0.851866 3. Relationship engagement 0.613631 0.509588 0.877705 *Bold diagonal figures represent the square root of AVE. AVE: Average variance extracted, M&A: Mergers and acquisitions other words, it appears that, if both the acquirer and the target firm work together to improve their relationship by enabling to share important position and decision making processes in the combined firms, they will be able to enhance M&A performance. It is not necessarily that important position is controlled by the leaders from the acquirer but some positions in the combined firm need the existing leaders from the acquired firm. This is due to the nature of the position and additionally the leaders who managed that position have huge knowledge and experiences in that particular position. Thus, managers and leaders need to cultivate sharing and apply a rotation basis on their responsibilities in order to Figure 2: Path coefficient results Jedin and Saad: Relationship Engagement in Mergers and Acquisitions through Collegial Leadership International Journal of Economics and Financial Issues | Vol 6 • Special Issue (S7) • 2016 85 initiate healthy relationships which at the same time developing successful M&A integration. Furthermore, this could generate a fair agreement among the managers and highlight to those who have perform better in a particular position in improving the new combined firm. A strong relationship among the leaders enables the combined firms to rejuvenate quick liquidity. More importantly both of the combined firms could develop sustain business environment with dynamic and passionate colleagues. In addition, the rotation basis on position approaches give more opportunity to both acquirer and acquired staff to maintain their personal developments and reduce feeling of retrenchment and uncertainty in the amalgamation (King et al., 2004). In fact, according to Meyer (2001), both firms need to develop sharing environment and fostering relationships through balance power among the decision makers. Thus, clearly, a leader in the amalgamation processes needs to play a pivotal role to develop a collegial relationship among the managers to cultivate a sustainable integration environment. 6. CONCLUSIONS As predicted, the relationship engagement is significant and positively associated with the M&A performance. As mentioned earlier, relationship engagement is very important to all levels of staff in the combined firms as this is the one that manage the motivations and social supports at the workplace. Furthermore, a high motivated staff could perform their task at maximum levels. 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