How Does Relative Deprivation Influence Employee Intention to Leave a Merged Company? The Role of Organizational Identification

• Author: Dongseop Lee,Kwanghyun Kim,Bongsoon Cho
• DOI: http://doi.org/10.1002/hrm.21580
• Date: 01 May 2014
• Published date: 01 May 2014

Human Resource Management, May–June 2014, Vol. 53, No. 3. Pp. 421–443

© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21580

Correspondence to: Dongseop Lee, Korea University Business School, Anam-dong, Seongbuk-gu, Seoul, Korea,

136-701, Phone: 82-2-3290-2618, E-mail: dongseoplee@korea.ac.kr.

HOW DOES RELATIVE

DEPRIVATION INFLUENCE

EMPLOYEE INTENTION TO

LEAVE A MERGED COMPANY?

THE ROLE OF ORGANIZATIONAL

IDENTIFICATION

BONGSOON CHO, DONGSEOP LEE, AND

KWANGHYUN KIM

Recognizing the importance of postmerger integration from a human re-

source management perspective, this study explores the relationship be-

tween employee perceptions of relative deprivation during a merger and

acquisition (M&A) process and their turnover intentions. Drawing on social

identity theory, we investigate whether the relationship between relative dep-

rivation and turnover intention can be mediated by employee organizational

identifi cation. The results, based on a two-phase survey of 222 employees

in a merged Korean company, show that egoistic relative deprivation, de-

fi ned as people’s feelings of deprivation due to their dissatisfaction with their

position as an individual, predicts employee turnover intention. Moreover,

employee identifi cation with the postmerger organization was found to fully

mediate the relationship between egoistic relative deprivation and turnover

intention. The article concludes with theoretical contributions, practical impli-

cations, and future research directions. © 2014 Wiley Periodicals, Inc.

Keywords: mergers and acquisitions (M&As), organizational identifi cation,

relative deprivation, turnover intention

422 HUMAN RESOURCE MANAGEMENT, MAY–JUNE 2014

Human Resource Management DOI: 10.1002/hrm

The HR perspective

emphasizes the

importance of

addressing the

“people problem” in

M&A success.

Over the past several decades, merger

and acquisition (M&A) activities

have surged worldwide. In 2009,

the total number of M&As topped

40,000. In 2007, the total transac-

tion value of M&As was $5.5 trillion. The

2007 value is over five times greater than the

1994 figure (http://www.imaa-institute.org).

Despite the popularity of M&As, however,

research has revealed a disturbing fact—over

half of M&A attempts fail (Ashkenas &

Francis, 2000; Moeller, Schlingemann, &

Stulz, 2005). Sirower (1997) found that,

among the 168 M&As between 1979 and

1990, two-thirds underperformed in the stock

market. Similarly, a meta-analysis that exam-

ined over 5,000 M&A cases

reached the conclusion that M&A

activity affects the acquiring

firm’s performance either nega-

tively or insignificantly (King,

Dalton, Daily, & Covin, 2004). To

explore the reasons behind these

disappointing results, scholars

have conducted in-depth investi-

gations of M&A success factors.

While studies based on eco-

nomic or financial perspectives

have primarily been interested in premerger

or deal conditions, such as the timing and

terms of takeovers (Hackbarth & Morellec,

2008), forms of payment (Shleifer & Vishny,

2003), and the size of the premium (Clark &

Ofek, 1994), the human resource and strat-

egy perspectives tend to focus on postmerger

integration issues (Aguilera & Dencker,

2004; Goold & Campbell, 1998; Haspeslagh

& Jemison, 1991; Seo & Hill, 2005; Stahl &

Mendenhall, 2005). In particular, the HR

perspective emphasizes the importance of

addressing the “people problem” in M&A

success.

The value created by M&As depends

greatly on the synergistic effects of the imple-

mentation process (Jemison & Sitkin, 1986),

where people play a key role. The financial

results of M&As, on the other hand, can-

not be explained well without considering

the human side of the process. Among the

multiple human issues involved in the M&A

process, we focus on employees’ voluntary

turnover. According to the resource-based

view, keeping talented employees in a merged

company leads to better organizational out-

comes through the employees’ valuable and

unique knowledge and experience (Barney,

1991, 2001). In fact, there have been debates

between the resource-based view and the

upper echelon theory, which views an orga-

nization as a reflection of its top managers

(Finkelstein & Hambrick, 1990; Hambrick

& Mason, 1984) in explaining the benefits

of integrating the acquired company in an

M&A (Bergh, 2001; Krug, 2003). For exam-

ple, Bergh (2001) tested a prediction, based

on the upper echelon theory, that retaining

top executives with shorter, rather than lon-

ger, organizational tenure would be more

beneficial for successful M&As. Against the

expectation that those with shorter tenure

have the willingness, capability, and adapt-

ability to embrace and effectively manage

strategic changes during the uncertain and

difficult times of the acquisition (Finkelstein

& Hambrick, 1990; Hambrick & Fukutomi,

1991), however, the empirical analysis of

over 100 acquisitions completed from 1986

through 1992 revealed that keeping top

executives with longer, rather than shorter,

tenure at the acquired company leads to bet-

ter acquisition outcomes (Bergh, 2001). This

result supports the resource-based view.

Upper echelon theory has usually been

applied when exclusively focusing on how

top executives, not middle managers and low-

rank employees, influence the outcome of the

M&A. As such, this is less useful in predict-

ing employee turnover at an individual level.

Moreover, in the high-tech and knowledge

industries, organizational knowledge, critical

skills, and know-how are possessed not only

by top management, but also by middle man-

agement and others, including researchers

and engineers. The loss of human capital may

reduce the estimated synergies of the M&A

and negatively impact the firms’ postmerger

performance (Hillmer, Hillmer, & McRoberts,

2004; Ranft & Lord, 2000), since human capi-

tal is critical to the success of the new orga-

nization in attaining sustainable competitive

advantages from the organizational change

(Barney, 1991, 2001; Shearer, 2001).