Abstract
In this paper, we aim to test whether and how corporate social responsibility (CSR) is valued in merger and acquisition (M&A) transactions. Employing multiple regression and logistic regression methods to examine the CSR in China’s domestic M&A market from 2007 to 2018, we reveal the following: (i) acquisition targets with higher social performance can attain higher acquisition valuation, especially when the acquirers are also socially responsible; (ii) high-CSR acquirers are inclined to choose equity payments, while high-CSR acquisition targets prefer to be paid in cash; (iii) high CSR performance boosts M&A success rate. The findings are robust, due to adopting two-stage least squares method to tackle endogeneity, substituting variable measures and data sources, and winsorizing variables at high levels to eliminate outliers. The value of CSR in M&As possibly results from the role of CSR in reducing information frictions, agency concerns, and corporate risks and is primarily associated with activities which are friendly to suppliers, customers, shareholders, public welfare, and natural environment, as well as being higher in developed regions and irrelevant to corporate ownership and nature. The study is of vital significance to the valuation and decision making in M&A deals.
Highlights
We aim at filling the gap by factoring corporate social responsibility (CSR) into merger and acquisition (M&A) decision making and M&A valuation, which is of crucial importance for improving the economic performance and risk management of M&A transactions, and for correctly understanding the value of CSR in the context of M&A waves in China
By scrutinizing the acquisitions in the Chinese market from 2007 through 2018, in this paper, we discover the following: (i) Acquiring companies are likely to pay higher acquisition prices and acquisition premiums for socially responsible target companies, especially when the acquiring companies enjoy high-CSR performance. (ii) Acquiring companies are inclined to pay in cash for relatively high-CSR targets and in shares for relatively low-CSR targets, while the payment preference of the target companies is the opposite. (iii) The social performance of both counterparties helps improve M&A success rate. (iv) The value of CSR reflected in Chinese M&A transactions essentially boils down to social activities targeting suppliers, customers, creditors, and natural environment
The results demonstrate the following: (i) M&A deals are more highly valued in developed regions, and the role of CSR in increasing acquisition valuation is enhanced when the acquiring companies are socially responsible; (ii) company nature does not affect M&A pricing and the role of CSR in promoting M&A price/premium
Summary
The literature has paid increasing attention to the significance of corporate social responsibility (CSR) [1,2]. Most studies have focused on the effect of social responsibility on economic performance [3,4,5,6,7,8], corporate governance [9,10], financial cost [11,12,13], etc. Studies have seldom examined the effect of CSR on merger and acquisition (M&A) contracting and the M&A success rate. We aim at filling the gap by factoring CSR into M&A decision making and M&A valuation, which is of crucial importance for improving the economic performance and risk management of M&A transactions, and for correctly understanding the value of CSR in the context of M&A waves in China
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