When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns

Journal of Business Ethics, Forthcoming

41 Pages Posted: 27 Aug 2020

See all articles by Tingting Zhang

Tingting Zhang

China University of Political Science and Law

Zhengyi Zhang

Capital University of Economics and Business (CUEB) - International School of Economics and Management

Jingyu Yang

University of Sydney Business School

Date Written: July 15, 2020

Abstract

This study examines whether an acquirer’s pre-announcement corporate social responsibility (CSR) engagement can provide an insurance-like effect to preserve acquirer returns during the announcement of an acquisition event. Drawing on stakeholder theory and signaling theory, we posit that CSR engagement accrues positive moral capital for an acquirer and sends a positive signal indicating the acquirer’s altruism, both of which temper stakeholders’ negative responses and prevent a reduction in market returns around the announcement of an acquisition. However, high-CSR engagement could backfire when the acquirer makes a hostile takeover announcement. In-congruent signals between high-CSR engagement and the hostile practice are a sign of hypocrisy in the eyes of stakeholders, which can worry investors and hurt acquirer returns. By analysing 1,310 acquisition transactions from 2002–2012, the results of our event study show that high-CSR acquirers generally enjoy positive acquirer returns during their acquisition announcements, but negative returns when the acquisitions are hostile. These findings support the idea that CSR engagement can provide insurance-like benefits during an event that is often seen as “negative”, while also identifying signal in-congruence as an important boundary condition.

Keywords: Corporate Social Responsibility; Insurance-like Effect of CSR; Acquirer Returns; Mergers and Acquisitions; Signal In-congruence; Authenticity

JEL Classification: G43; M14

Suggested Citation

Zhang, Tingting and Zhang, Zhengyi and Yang, Jingyu, When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns (July 15, 2020). Journal of Business Ethics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3656906 or http://dx.doi.org/10.2139/ssrn.3656906

Tingting Zhang

China University of Political Science and Law ( email )

25 Xitucheng Rd
Haidian District
Beijing
China

Zhengyi Zhang (Contact Author)

Capital University of Economics and Business (CUEB) - International School of Economics and Management ( email )

Beijing
China

Jingyu Yang

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

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