The Cost of Corporate Social Irresponsibility for Acquirers

51 Pages Posted: 30 Nov 2022

See all articles by Reagan D'Souza

Reagan D'Souza

The University of Western Australia

Chloe CY Ho

The University of Western Australia

Joey (Wenling) Yang

The University of Western Australia

Abstract

Few studies have examined the spillover reputational damage of environmental and social (E&S) scandals ex-post. Using an international sample of negative E&S incidents and mergers and acquisitions (M&A) across 18 countries, we examine whether heightened E&S risks of acquirers post-incident affect the cost of acquisition. We find that the severity of the incident increases acquisition premium and this effect is exacerbated by acquiring firms' pre-existing reputational capital. At country level, incident acquirers in countries with stronger E&S standards and policies also experience higher premium. Further analysis shows that E&S incidents reduce shareholder value at the M&A announcement and increase time taken to M&A completion. Firms are less likely to acquire after experiencing an E&S incident, but it depends on the cost of delay. Finally, we show that reputational risk from negative E&S incidents on acquisitions is time variant, and it dissipates after the lapse of six months.

Keywords: Mergers and acquisitions, Corporate social irresponsibility, Reputational capital, Environmental scandal, Social Scandal

Suggested Citation

D'Souza, Reagan and Ho, Chloe CY and Yang, Joey (Wenling), The Cost of Corporate Social Irresponsibility for Acquirers. Available at SSRN: https://ssrn.com/abstract=4289293 or http://dx.doi.org/10.2139/ssrn.4289293

Reagan D'Souza

The University of Western Australia ( email )

35 Stirling Highway
Crawley, 6009
Australia

Chloe CY Ho

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Joey (Wenling) Yang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

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