Signaling through corporate social responsibility: evidence from mergers and acquisitions

James Juichia Lin, Yin-Hua Yeh () and Chien Chan
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James Juichia Lin: National Yang Ming Chiao Tung University
Yin-Hua Yeh: National Yang Ming Chiao Tung University
Chien Chan: National Yang Ming Chiao Tung University

Eurasian Business Review, 2025, vol. 15, issue 2, No 4, 447-479

Abstract: Abstract This study investigates the relationship between corporate social responsibility (CSR) and takeover premiums in U.S. mergers and acquisitions (M&A). Using data from 392 completed deals between 1996 and 2016, the analysis compares the investment and signaling hypotheses. The CSR variable is decomposed into expected CSR (based on economic factors) and unexpected CSR (deviation from expectations). The takeover premium is measured as the percentage difference between the offer price and the target’s share price 4 weeks (or 1 week) before the announcement. The results reveal that unexpected CSR activities are positively associated with higher takeover premiums, supporting the signaling hypothesis. This finding suggests that unanticipated CSR activities convey private information about a firm’s future performance, prompting acquirers to offer higher premiums. The signaling effect is more pronounced in firms with high information asymmetry and CSR initiatives related to employee relations and product quality. These findings indicate that CSR reduces information asymmetry, thereby influencing acquirers' valuations in M&A transactions.

Keywords: Corporate social responsibility; Mergers and acquisitions; Takeover premium; Signaling (search for similar items in EconPapers)
JEL-codes: G30 G34 M14 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s40821-025-00300-2

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