When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns

Tingting Zhang (), Zhengyi Zhang () and Jingyu Yang ()
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Tingting Zhang: China University of Political Science and Law
Zhengyi Zhang: Capital University of Economics and Business
Jingyu Yang: The University of Sydney

Journal of Business Ethics, 2022, vol. 175, issue 1, No 5, 45-58

Abstract: Abstract This study examines whether an acquirer’s pre-announcement corporate social responsibility (CSR) engagement can provide an insurance-like effect to preserve acquirer returns during the announcement of an acquisition event. Drawing on stakeholder theory and signaling theory, we posit that CSR engagement accrues positive moral capital for an acquirer and sends a positive signal indicating the acquirer’s altruism, both of which temper stakeholders’ negative responses and prevent a reduction in market returns around the announcement of an acquisition. However, high-CSR engagement could backfire when the acquirer makes a hostile takeover announcement. Incongruent signals between high-CSR engagement and the hostile practice are a sign of hypocrisy in the eyes of stakeholders, which can worry investors and hurt acquirer returns. By analysing 1310 acquisition transactions from 2002 to 2012, the results of our event study show that high-CSR acquirers generally enjoy positive acquirer returns during their acquisition announcements, but negative returns when the acquisitions are hostile. These findings support the idea that CSR engagement can provide insurance-like benefits during an event that is often seen as “negative”, while also identifying signal incongruence as an important boundary condition.

Keywords: Corporate social responsibility; Insurance-like effect of CSR; Acquirer returns; Mergers and acquisitions; Signal incongruence; Authenticity (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10551-020-04583-5

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