Corporate social responsibility overinvestment in mergers and acquisitions

Zhenkun Wang, Weijie Lu and Min Liu

International Review of Financial Analysis, 2021, vol. 78, issue C

Abstract: Corporate social responsibility (CSR) has been advocated by scholars and practitioners whereas overinvestment in CSR can destroy value. This paper investigates how CSR overinvestment influences firm value in the context of mergers and acquisitions (M&As). Specifically, we examine the shareholder wealth and financial performance of firms who bid on targets with CSR overinvestment. The results suggest that firms purchasing CSR-overinvesting targets experience significant declining market reactions to the M&A announcements and deteriorating financial performance following the M&A transactions. We further show significant improvement in CSR ratings and CEO pay among acquirers purchasing CSR-overinvesting targets. Moreover, the adverse effects of CSR-overinvesting targets on M&A outcomes are more pronounced for the acquiring firms with weak corporate governance or with retiring CEOs. Our findings suggest that a firm makes a value-destroying M&A with a CSR-overinvesting target probably for the benefit of improved CSR and CEO gains. This study provides evidence for the agency view of CSR investment in the context of M&As.

Keywords: Corporate social responsibility (CSR); CSR overinvestment; Mergers and acquisitions (M&as); CSR contracting; Corporate governance (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:78:y:2021:i:c:s1057521921002659

DOI: 10.1016/j.irfa.2021.101944

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