Too Much of a Good Thing? Corporate Social Responsibility and the Takeover Market

Abstract

We examine the relation between corporate social responsibility (CSR) and firm value using the takeover market as an experimental setting. Firms with extreme CSR policies experience a greater likelihood of takeover and lower wealth gains in takeovers relative to firms with moderate policies. Our results are robust to controlling for governance and alternative motivations for mergers and are evident in sub-samples where CSR is arguably more important. The takeover market acts as a corrective mechanism for firms that over- or under-invest in CSR. Overall, the evidence suggests that CSR generally benefits shareholders, however, extreme CSR policies appear to be harmful.

Keywords: Corporate Social Responsibility, Mergers and Acquisitions, Stakeholder Theory

JEL Classification: G32, G34, M14