Corporate Cultural Spillover and Synergistic Gains: Evidence from Mergers and Acquisitions

Abstract

Recent research has documented that firms’ social performances have huge impacts on mergers and acquisitions (M&A) outcomes. Using a large sample of U.S public firm data, I test several theories of whether and how the cultural differences measured by adjusted corporate social responsibility (CSR) scores of the acquirer and the target affect short- and long-term post-M&A performances. Consistent with the stakeholder value maximization view, I find that a firm’s shareholders react positively to the deals that involve high CSR acquirers buying targets with low CSR scores and targets without CSR ratings. These “cultural spillover” deals improve firms’ immediate announcement returns (CARs), post-M&A operating performances as well as long-term abnormal stock returns. Nonetheless, there is little evidence of positive reactions from investors for “cultural learning” deals consisted of low/no CSR acquirers and high CSR targets. These results suggest that acquirer-target cultural spillover measured by firms’ social responsibility scores is an important determinant of M&A performance, thus rejecting the alternative hypothesis that the cultural differences affect their immediate as well as the long-term abnormal returns. The paper also finds that deals with CSR-rated acquirers realize higher M&A announcement returns compared to the deals with non-rated acquirers, suggesting that CSR ratings produce valuable information to financial market. Additionally, the results of univariate tests on daily stock market trading volume reveal that investors tend to react more favorably to acquirers’ “responsible” news like being rated with CSR scores.

Keywords: Cultural spillover, Corporate Social Responsibility (CSR), Merger and Acquisition (M&A), Signaling

JEL Classification: G14, G32, G34, M14, Z1