Pre-merger performance and merger success: An experimental approach

We investigate how firms’ characteristics and cultural integration – defined as the internal cohesion that emerges within a firm’s organization – affect merger success using laboratory experiments. In our design, subjects develop a shared culture while completing tasks, allowing us to capture both pre- and post-merger performance data. Using a panel model that tracks the dynamics of culture formation, we estimate the stable performance level of each firm once its culture is fully developed. We then examine how pre-merger characteristics and organizational culture influence post-merger outcomes. Our results show that the more efficient a firm’s pre-merger organizational culture, the more successful its post-merger culture, as stronger cultural integration emerges among the merging parties.