Mending Fences: Do Target Firms Bolster Corporate Social Responsibility after Unsuccessful Takeovers?

Abstract

Prior studies show that after unsuccessful takeover attempts, target firms improve their financial performance and corporate governance to deter raiders; however, little is known about whether they also take steps to improve non-financial measures. Using a sample of U.S. firms, we find target firms improve their corporate social responsibility (CSR) performance by approximately 4% to 5% following unsuccessful takeover attempts and show that such strategies can reduce the odds of being a target in the future. Furthermore, we show these investments in CSR are excessive and add little to firm value, suggesting that following a failed takeover bid, managers invest in CSR to protect their positions rather than to maximize shareholder value. Consistent with the role of employees and the community in deterring takeovers, our analysis shows that target managers primarily improve CSR practices directed at these two stakeholder groups. We also find enhancements to CSR activities following unsuccessful takeover attempts are more pronounced when target managers are more concerned about job security and when alternative anti-takeover tactics, such as formal anti-takeover provisions and financing and investment policies, are absent. Taken together, our findings suggest that managers of target firms deliberately engage in CSR activities to deter unwanted takeover attempts after experiencing unsuccessful takeovers.

Keywords: Unsuccessful Takeovers, Corporate Governance, Corporate Social Responsibility, Agency Problems JEL Codes: G34, M14 Data Availability: All data are obtained from public sources