Abstract
This study examines the effect of a target firm’s corporate social responsibility (CSR) on its cross-border acquisition premium. Building upon the resource-based view and the institutional theory, we argue that the target firm’s CSR positively affect the cross-border acquisition premium, while institutional distance, cultural distance, and the number of fellow acquisitions moderate the above relationship. Hypotheses are tested in a sample of 252 cross-border acquisitions between 1991 and 2016. Empirical findings show that an acquirer is more likely to pay a higher acquisition premium when acquiring a socially responsible target firm; furthermore, such an effect weakens as institutional distance, cultural distance, and the number of fellow acquisitions increase. This study extends existing research on the importance of CSR as a strategic asset and sheds new light on the role of CSR played in the setting of cross-border acquisitions.
Highlights
Corporate social responsibility (CSR) refers to the extent that a firm pursues sustainable development in the long run and makes balances between social benefits and economic benefits [1]
This paper focuses on the firm-level factors and investigates the role of a target firm’s corporate social responsibility (CSR) in determining the acquirer’s bidding price and acquisition premium, relying on the resourced-based view and the institutional theory
This study took into consideration the country differences in cross-border mergers and acquisitions (M&As), and proposed that three institutional factors—institutional distance, cultural distance, and the number of fellow acquisitions—negatively moderate the relationship between the target’s CSR and the cross-border acquisition premium
Summary
Corporate social responsibility (CSR) refers to the extent that a firm pursues sustainable development in the long run and makes balances between social benefits and economic benefits [1]. CSR has become a critical factor that influences top managers’ key investment decisions such as the selection and evaluation of a target firm for mergers and acquisitions (M&As). General Motors (GM), for example, set up a special department to conduct due diligence on a target firm’s performance on environmental protection before an acquisition [6]. L’Oréal acquired the Body Shop due to the latter’s outstanding performance in environmental protection and its non-use of animals in experimentation [7]. These business practices suggest that firms tend to acquire and learn from socially responsible target firms. It is reasonable to infer that CSR plays an important role in the setting of M&As
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