Do CSR Firms Make Better Acquisitions? - The Case of Taiwan

Abstract

This study examines the association between Corporate Social Responsibility (CSR) activities measured by two of Taiwan’s leading publishers, the Commonwealth Magazine and the Global View Magazine, and the acquirer’s short- and long-term performances after the merger announcement in Taiwan. We use CEO compensation and the firm’s free cash flow as the proxies for CEO self-confidence. We find that the acquirer’s CSR engagement is positively associated with its long-term performance but not with its short-term performance. CEO compensation is positively associated with the acquirer’s performance, especially after the mandatory establishment of the remuneration committee for publicly traded firms. However, the acquirer’s free cash flow is found negatively associated with its performance, supporting Jensen’s (Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76, 323–329) free cash flow hypothesis or CEO hubris. These findings indicate that the CSR measurements of Commonwealth Magazine and Global View Magazine do provide valuable information for CSR activities and that CSR activities do enhance firm value in the long run. Furthermore, the requirement for the establishment of the remuneration committee does improve the effectiveness of CEO compensation for firm performance in Taiwan.