CSR-enhancing Acquisitions: Investigating the Role of CSR in Corporate Strategy

Abstract

In this paper, we explore and investigate whether and to what extent CSR-enhancing acquisitions, defined as acquisitions where targets have a better corporate social responsibility (CSR) record than the acquirers, create value for acquirers’ shareholders. Drawing on the social capital perspective on CSR and stakeholder theory, CSR-enhancing acquisitions can be seen as a strategy pursued by firms to accumulate social capital and improve their CSR performance. Using a sample of acquisitions involving publicly traded firms the period of 1991-2013, our study shows that the announcements of the CSR-enhancing acquisitions yield higher cumulative abnormal returns (CAR) for acquiring firms’ shareholders, compared to those of non CSR-enhancing acquisitions. On one hand, the positive effect of CSR-enhancing acquisition on the abnormal returns becomes more salient (i) during economic downturns and (ii) in the presence of low information asymmetry. On the other hand, because of expectancy violation and inconsistency, the effect of CSR-enhancing acquisitions on the announcement returns is attenuated when acquirers have a recent involvement in controversial issues.