How do mergers and acquisitions impact employee mental health?

Oct. 07, 2022

This Mental Health Day, we highlight research about how mergers and acquisitions impact the mental health of employees. How does employees' mental health deteriorate after a merger, and which workers are most affected?

Mergers and acquisitions (M&A) dominated financial headlines last year as M&A activity across industries and continents reached record highs. Companies usually engage in M&A to encourage growth and to assert a competitive edge, but this often means restructuring, reorganization, potential job losses and general uncertainty, which can have detrimental effects on employees’ mental health.

SHoF’s Ramin Baghai, Marieke Bos and Laurent Bach, together with Nova School of Business and Economics’ Rui C. Silva, take a deep dive into Swedish employee-employer level data linked to individual health records to find incidence of stress, anxiety, depression, psychiatric medication usage, and suicide following mergers.

Mental health issues edge higher following M&A

The study found that M&A negatively impact workers’ mental health across all indicators, including stress and anxiety, depression diagnoses, both inpatient and outpatient care, medication prescription, and even death and suicide.

Overall mental health issues increased 2.6% among employees after an M&A compared to the pre-merger period. Both employee in and out-patient hospital care after a merger or acquisition rose by 2% and 5% respectively compared to the pre-merger period.

While some mental health disorders like bipolar disorder or schizophrenia are unlikely to be caused by corporate events as they are primarily genetic, anxiety disorders, stress, and depression are likely to increase following a merger.

The researchers observed an 8% increase in depression diagnoses and a 9.6% increase in the dosage of antidepressant medications following a merger. Most alarmingly, the study also found a significant increase in the probability of death and suicide.

M&A’s impact on employee mental health varied

Mergers impacted the mental health of various types of employees differently, depending on if they received a wage cut, if they were employed by the acquirer or target company, and if the deal was with a competitor (horizontal merger) or with a company from another sector (vertical or conglomerate merger). The study also looked into if employee skill levels, gender and their national origin yielded varied mental health outcomes.

Wage change

The employees who experienced wage cuts following the merger or acquisition were compared to employees who did not. The study found that relative to the latter group, the mental health among workers who experience wage cuts significantly deteriorated. Among employees who received a wage cut, the probability to be diagnosed or take medications for a mental illness increased by 14% compared to the pre-merger period.

Acquirer vs target firm employee

In an acquisition, firms that are being bought over are usually subject to more intense restructuring and reorganization than the acquiring firm. The study found that employees at the target firm were twice more likely to develop mental health problems than those in the acquiring company.

Horizontal vs. Vertical

Employees from companies going through a horizontal merger— where companies are active in the same industry— experienced more detrimental mental health effects than employees in a vertical (a transaction between companies that are part of the same supply chain) or conglomerate merger (a transaction between essentially unrelated companies).

In the case of horizontal mergers, the combination of similar activities may be associated with more corporate cultural clashes. Such mergers may also create more opportunities to cut costs and cause job losses than vertical ones, where operations are more naturally segmented, and existing company cultures are more likely to remain intact.

Skill level

Workers with lower educational attainment experienced worse mental health effects than their more educated counterparts. Similarly, blue-collar workers like clerks, service workers, plant and machinery operators, experienced a more pronounced deterioration of their mental health compared to white-collar workers.

The study also investigated how M&As impacted the mental health of workers with below-than-average cognitive and non-cognitive skills. By using data on military enlistment test scores for male workers, the study found worse mental health effects of M&As for workers with innate ability that ranks below the sample median.

Gender, age, national origin

The study found that women employees are more likely to experience mental health problems compared to men but are less likely to die from suicide following a merger or acquisition. This is likely due to women being more inclined to acknowledge health problems and seek healthcare compared to men, the authors say.

Across age groups, those 51 and older were the least affected by M&As, while employees aged 31-50 were most affected.

The study also compared foreign-born employees to their local counterparts and found that both groups generally experience similar mental health effects following mergers.

Laurent Bach

Ramin Baghai

Researcher, SHoF

Professor, Department of Finance, SSE

Marieke Bos

Deputy Director, Swedish House of Finance

Associate Professor (Docent), Swedish House of Finance

Rui Silva

Nova School of Business and Economics

Paper

How Do Mergers Affect the Mental Health of Employees?

Q&A with Marieke Bos

Why should readers care about the results you document? Are there any policy implications?

Recent debates about corporate purpose and calls for corporations to balance the interests of all stakeholders—not just shareholders— make this a timely question.

In a merger, two firms combine to operate as a single legal entity to achieve certain strategic goals such as an increase in market share, to reduce competition, or to benefit from economies of scale and scope. In these corporate transactions, shareholders’ interests may diverge from those of other stakeholders.

While a large body of academic research in economics and finance has analyzed the causes and consequences of such transactions, most of this work has focused on their financial determinants and outcomes from the perspective of shareholders. This almost exclusive focus on firm value is not sufficient to understand whether mergers are good for society.

Mergers inevitably affect a wide range of stakeholders. For example, industrial organization economists and antitrust regulators have long understood that anti-competitive mergers, even if potentially beneficial to shareholders, may harm consumers. Our study focuses on another important set of stakeholders: a firm’s workers.

When does the mental health impact start, peak and moderate during the M&A process?

The study found no significant increase in mental health in the pre-period before the M&A. However, during the year of the merger, we observe an increase that peaks in the second year and remains constantly elevated even four years after. Four years after the merger, employees still experience statistically significant elevated levels in their likelihood to be diagnosed with a mental illness, as well as increased levels of prescription drug intake related to mental illness

Did some employees’ mental health improve during an M&A?

While mergers cause a decline in mental health for employees generally, employees belonging in the upper echelons of management are likely to experience no change or even an improvement in their mental health. When looking into changes in mental health across mergers for employees in the so-called “C-Suite” encompassing CEOs, CFOs, COOs, and other executive directors, the researchers found no change in the probability to be diagnosed or be prescribed medication for a mental illness.