Does CSR Facilitate an Enhanced M&A Performance? - Empirical Evidence from Mergers and Acquisitions in Northern Europe

Abstract: Transaction volumes in the global mergers and acquisitions (M&A) markets are close to peak levels (JP Morgan, 2018) and companies', as well as capital markets' investments into corporate social responsibility (CSR) activities, are growing from already high levels (Kitzmueller and Shimshack, 2012; Nordea 2017). However, it is still uncertain whether any such investments succeed to generate shareholder value (Bruner, 2002; Margolis et at., 2009). A few researchers have examined the intersection between M&A and CSR, where the majority has found that CSR is associated with superior M&A performance (e.g. Qiao et al., 2018). This has been argued to result from more successful integration processes due to particularly high stakeholder support (Deng et al., 2013). This paper examines a sample of 2 856 M&As conducted by firms from Northern Europe and interestingly, our findings provide evidence of the contrary. We find that highly CSR rated acquirers experience lower cumulative abnormal returns around announcement and lengthier deal durations when compared to lower rated and non-CSR rated acquirers. To investigate the relationship between CSR and cumulative abnormal returns, a univariate analysis and several multivariate regressions (OLS, 2SLS, and 3SLS) are conducted, aiming to control for potential endogeneity issues. Using a multivariate Cox regression to investigate deal duration, we find that stronger CSR performers experience significantly lengthier deal durations in both private and public transactions. Further analysis of the decomposed CSR measure reveals that only social performance is negatively associated with cumulative abnormal returns, while primarily stronger environmental performers face significantly lengthier deal durations. Overall, the empirical evidence suggests that acquirers CSR performance is negatively related to shareholder wealth in M&A transactions in Northern Europe, which is in line with the shareholder expense view (Friedman, 1998). Our results are contradictory to the main part of prior research and potential explanations for the divergence in findings are presented and discussed.