Corporate culture and M&A deals: Using text from crowdsourced employer reviews to measure cultural differences

Corporate culture constitutes a key success factor in mergers and acquisitions (M&A). We examine the role of acquirer-target cultural differences in US domestic M&A deals. We train a topic model on how employees describe corporate culture in free-response texts of crowdsourced employer reviews to estimate cultural differences between the acquirer-target pairs. We find a negative linear relationship between cultural differences and deal announcement returns. However, adding a squared term of our main variable of interest to our model reveals a U-shaped relationship between cultural differences and announcement returns that is stronger in magnitude and statistical significance than the single term alone. Our results reconcile two competing hypotheses on the role of cultural differences in M&A.