Corporate Social Responsibility and M&A Uncertainty

Abstract

We contribute to the corporate social responsibility (CSR) literature by investigating whether the CSR of acquirers impacts mergers and acquisitions (M&A) completion uncertainty. Using arbitrage spreads following initial acquisition announcements as a measure of deal uncertainty, we document – for an international sample of 726 M&A operations spanning the 2004-2016 period – a negative association between arbitrage spreads and acquirers’ CSR. Specifically, we show arbitrage spreads are reduced by 1.10 percentage points for each standard deviation unit-increase in the acquirer’s CSR score. Findings are qualitatively similar when we focus on individual CSR dimensions (environmental, social, and governance). Our results suggest the CSR of acquirers is an important determinant of the way market participants assess the outcome of M&As worldwide.

Keywords: Corporate Social Responsibility (CSR), Mergers and Acquisitions (M&A), Risk Arbitrage

JEL Classification: G34, M1