Social Capital, Opportunism, and Corporate Acquisition

69 Pages Posted: 5 Nov 2024

See all articles by Goeun Choi

Goeun Choi

Loyola Marymount University - College of Business Administration

Chang Suk Bae

Tulane University - A.B. Freeman School of Business

Abstract

We examine how local social capital---characterized by social norms, trust, and networks at the U.S. county level---influences mergers and acquisitions activities. Firms located in high-social-capital counties exhibit lower acquisition intensity at the extensive, but not the intensive, margin, implying selective engagement in acquisitions. Moreover, social capital reduces (i) the likelihood of acquisitions within the same region or industry, (ii) the likelihood of proposed acquisitions undergoing antitrust scrutiny, and (iii) the likelihood of acquirers paying for deals with overvalued stocks. This constraining effect is further evidenced by extensive due diligence, a preference for targets from high-social-capital regions, and the avoidance of sin-industry targets. Social capital contributes to positive cumulative abnormal returns on average, but only weakly at the upper end of the return distribution, suggesting suboptimal performance due to discerning target choices. Our findings suggest that social capital encourages selective and prudent acquisition decisions, thereby mitigating opportunistic practices.

Keywords: Social Capital, M&A, Corporate Opportunism, Stakeholder Theory

Suggested Citation

Choi, Goeun and Bae, Chang Suk, Social Capital, Opportunism, and Corporate Acquisition. Available at SSRN: https://ssrn.com/abstract=5010219 or http://dx.doi.org/10.2139/ssrn.5010219

Goeun Choi (Contact Author)

Loyola Marymount University - College of Business Administration ( email )

Los Angeles, CA 90045
United States

Chang Suk Bae

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

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