Organisational slack and post-merger performance: evidence from domestic and international takeovers

We focus on the role of organizational slack on post-merger performance of domestic and cross-border acquirers. By employing a comprehensive sample of 9,345 M&A deals by US firms during the period 1995-2014, we examine the impact of different types of organizational slack - unabsorbed, absorbed, high and low discretion slack - on the acquirers’ post acquisition performance. We find that on average acquisitions lead to the destruction of significant value for the bidder. However, organizational slack that is not readily available, may aggravate the negative effects of a takeover, leading to further losses in market value. On the contrary, readily available slack, in particularly the abundance of cash reserves, mitigates the challenges associated with a large corporate takeover and acts as a defense mechanism against acquirers’ losses. The above influences of organizational slack on post-merger performance are amplified in the case of international acquisitions. Therefore organizational slack is not only an important motivator for international activities as suggested in the past, but may also act as a facilitator for the success of cross-border investment decisions.