By studying the relation between targets’ CSR and M&A premiums, this research finds that acquirers perceive the targets’ CSR engagement value-destroying in M&A deals and therefore assign less premiums when targets present better CSR performance.
This is consistent with the shareholder theory which indicates CSR consumes financial resources at the expense of the shareholders, and further points out that in M&A deals, the transfer of targets’ CSR to acquirers may cost heavily for future integration.
Furthermore, by applying the capability-deployment theory, good CSR performance undermines potential takeover gains in inferior management replacement. As such, targets’ CSR engagement violates the goal of profit-maximization for acquirers and therefore reduces M&A premiums.
The second finding of the study suggests the target’s firm performance exercises a positive moderating effect on the association of CSR engagement and premiums. The
acquirer lessens its negative perception on CSR where the target presents higher profitability and operating ability. This complements the argument of “do good by doing well,” which implies the fact that the acquirer recognizes the target’s CSR as icing on the
cake when the target has done well in firm performance and wouldn’t consider acquiring the target’s CSR as value-destroying as it is for targets with low firm performance.
The two findings in this research might intrigue participants in the M&A market, especially corporate managers in target firms. They could draw insights from this paper that even if they consider their own CSR practice to be gratifying, beauty is in the eyes of the owner not the acquirer. Acquirers, in contrast, devalue the target’s CSR practice which might imperil the shareholder’s wealth in the acquiring firm. If targets wish to
alleviate the negative perception of CSR engagement and raise the bid price in the deal, they should present the firm’s priority in financial objectives by proving good firm performance and interpret CSR practice as additional operation means instead of something requesting huge efforts to manage.
This study adds to the body of literature on CSR under the context of M&A by using a domestic sample to investigate acquirers’ perception to targets’ CSR engagement through the assignment of premiums. Like all research, the study has limitations. First, as this study only picks domestic M&A deals, readers have to be careful when generalizing the result to deals involving cross-border factors. Second, both targets and acquirers in the sample are publicly listed companies and the data limits itself to deals of larger scale
where the transaction value exceeds one million dollars. Results may vary for private or small median enterprises. Third, the MSCI index contains a variety of indicators that measures CSR at an extensive level. Alternative focus of indicators or measurement application may also lead to different conclusions. Finally, although this research deduces many possible reasons for its findings, the results of OLS regression models only display the significant associations, future research should utilize this study by introducing a more thoughtful methodology to explore the determinants in the relation of targets’ CSR and M&A premiums as well as the moderating effect of factors from distinct levels.
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