Skip to main content
SpringerLink
Log in

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

  • Original Paper
  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

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. Incongruent 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 1310 acquisition transactions from 2002 to 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 incongruence as an important boundary condition.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1

Similar content being viewed by others

References

  • Acemoglu, D., & Johnson, S. (2005). Unbundling institutions. Journal of Political Economy, 113(5), 949–995.

    Google Scholar 

  • Anderson, H., Havila, V., & Salmi, A. (2001). Can you buy a business relationship?: On the importance of customer and supplier relationships in acquisitions. Industrial Marketing Management, 30(7), 575–586.

    Google Scholar 

  • Anderson, N. H. (1981). Foundations of information integration theory. New York: Academic Press.

    Google Scholar 

  • Barkema, H. G., & Schijven, M. (2008). Toward unlocking the full potential of acquisitions: The role of organizational restructuring. Academy of Management Journal, 51(4), 696–722.

    Google Scholar 

  • Barney, J. B. (1988). Returns to bidding firms in mergers and acquisitions: Reconsidering the relatedness hypothesis. Strategic Management Journal, 9(S1), 71–78.

    Google Scholar 

  • Bena, J., & Kai, L. I. (2014). Corporate innovations and mergers and acquisitions. Journal of Finance, 69(5), 1923–1960.

    Google Scholar 

  • Berger, P. G., & Ofek, E. (1995). Diversification's effect on firm value. Journal of Financial Economics, 37(1), 39–65.

    Google Scholar 

  • Berman, S. L., Wicks, A. C., Kotha, S., & Jones, T. M. (1999). Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal, 42(5), 488–506.

    Google Scholar 

  • Bettinazzi, E. L. M., & Zollo, M. (2017). Stakeholder orientation and acquisition performance. Strategic Management Journal, 38(12), 2465–2485.

    Google Scholar 

  • Bosse, D. A., Phillips, R. A., & Harrison, J. S. (2009). Stakeholders, reciprocity, and firm performance. Strategic Management Journal, 30(4), 447–456.

    Google Scholar 

  • Bull, C. (1983). Implicit contracts in the absence of enforcement and risk aversion. American Economic Review, 73(4), 658–671.

    Google Scholar 

  • Bull, C. (1987). The existence of self-enforcing implicit contracts. Quarterly Journal of Economics, 102(1), 147–159.

    Google Scholar 

  • Cai, Y., & Pan, J. C. (2012). Doing well while doing bad? CSR in controversial industry sectors. Journal of Business Ethics, 108(4), 467–480.

    Google Scholar 

  • Cain, M. D., McKeon, S. B., & Solomon, S. D. (2017). Do takeover laws matter? Evidence from five decades of hostile takeovers. Journal of Financial Economics, 124(3), 464–485.

    Google Scholar 

  • Campbell, J. L. (2007). Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility. Academy of Management Review, 32(3), 946–967.

    Google Scholar 

  • Campbell, J. T., Sirmon, D. G., & Schijven, M. (2016). Fuzzy logic and the market: A configurational approach to investor perceptions of acquisition announcements. Academy of Management Journal, 59(1), 163–187.

    Google Scholar 

  • Carroll, A., & Buchholtz, A. (2014). Business and society: Ethics, sustainability, and stakeholder management. Boston: Cengage Learning.

    Google Scholar 

  • Carter, S. M. (2006). The interaction of top management group, stakeholder, and situational factors on certain corporate reputation management activities. Journal of Management Studies, 43(5), 1145–1176.

    Google Scholar 

  • Chatterjee, S. (1992). Sources of value in takeovers: Synergy or restructuring–implications for target and bidder firms. Strategic Management Journal, 13(4), 267–286.

    Google Scholar 

  • Chen, X., Harford, J., & Li, K. (2007). Monitoring: Which institutions matter? Journal of Financial Economics, 86(2), 279–305.

    Google Scholar 

  • Clarkson, M. (1994). A risk based model of stakeholder theory. Toronto: Centre for Corporate Social Performance & Ethics, University of Toronto.

    Google Scholar 

  • Comment, R. G., & Schwert, G. W. (1995). Poison or placebo? Evidence on the deterrence and wealth effects of modern anti-takeover measures. Journal of Financial Economics, 39(1), 3–43.

    Google Scholar 

  • Connelly, B. L., Certo, S. T., Ireland, R. D., & Reutzel, C. R. (2011). Signaling theory: A review and assessment. Journal of Management, 37(1), 39–67.

    Google Scholar 

  • Cording, M., Harrison, J. S., Hoskisson, R. E., & Jonsen, K. (2014). Walking the talk: A multistakeholder exploration of organizational authenticity, employee productivity, and post-merger performance. Academy of Management Perspectives, 28(1), 38–56.

    Google Scholar 

  • Cuypers, I. R. P., Cuypers, Y., & Martin, X. (2017). When the target may know better: Effects of experience and information asymmetries on value from mergers and acquisitions. Strategic Management Journal, 38(3), 609–625.

    Google Scholar 

  • De Roeck, K., El Akremi, A., & Swaen, V. (2016). Consistency matters! How and when does corporate social responsibility affect employees’ organizational identification? Journal of Management Studies, 53(7), 1141–1168.

    Google Scholar 

  • Deng, X., Kang, J. K., & Low, B. S. (2013). Corporate social responsibility and stakeholder value maximization: Evidence from mergers. Journal of Financial Economics, 110(1), 87–109.

    Google Scholar 

  • Fassin, Y. (2012). Stakeholder management, reciprocity and stakeholder responsibility. Journal of Business Ethics, 109(1), 83–96.

    Google Scholar 

  • Franks, J., & Mayer, C. (1996). Hostile takeovers and the correction of managerial failure. Journal of Financial Economics, 40(1), 163–181.

    Google Scholar 

  • Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.

    Google Scholar 

  • Freeman, R. E. (1999). Divergent stakeholder theory. Academy of Management Review, 24(2), 233–236.

    Google Scholar 

  • Fuller, K., Netter, J., & Stegemoller, M. (2002). What do returns to acquiring firms tell us? Evidence from firms that make many acquisitions. Journal of Finance, 57(4), 1763–1793.

    Google Scholar 

  • Gamache, D. L., McNamara, G., Graffin, S. D., Kiley, J., Haleblian, J., & Devers, C. E. (2019). Impression offsetting as an early warning signal of low CEO confidence in acquisitions. Academy of Management Journal, 62(5), 1307–1332.

    Google Scholar 

  • Godfrey, P., Merrill, C., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30(4), 425–445.

    Google Scholar 

  • Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777–798.

    Google Scholar 

  • Graffin, S. D., Haleblian, J., & Kiley, J. T. (2016). Ready, AIM, acquire: Impression offsetting and acquisitions. Academy of Management Journal, 59(1), 232–252.

    Google Scholar 

  • Greening, D. W., & Gray, B. (1994). Testing a model of organizational response to social and political issues. Academy of Management Journal, 37(3), 467–498.

    Google Scholar 

  • Hannan, M. T., & Freeman, J. (1984). Structural inertia and organizational change. American Sociological Review, 49(2), 149–164.

    Google Scholar 

  • Harrison, J. S., & Freeman, R. E. (1999). Stakeholders, social responsibility, and performance: Empirical evidence and theoretical perspectives. Academy of Management Journal, 42(5), 479–485.

    Google Scholar 

  • Hillman, A. J., & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What's the bottom line? Strategic Management Journal, 22(2), 125–139.

    Google Scholar 

  • Kim, H., & Song, J. (2017). Filling institutional voids in emerging economies: The impact of capital market development and business groups on M&A deal abandonment. Journal of International Business Studies, 48(3), 308–323.

    Google Scholar 

  • King, D. R., Dalton, D. R., Daily, C. M., & Covin, J. G. (2004). Meta-analyses of post-acquisition performance: Indications of unidentified moderators. Strategic Management Journal, 25(2), 187–200.

    Google Scholar 

  • Laamanen, T., & Keil, T. (2008). Performance of serial acquirers: Toward an acquisition program perspective. Strategic Management Journal, 29(6), 663–672.

    Google Scholar 

  • Lamberg, J.-A., Tikkanen, H., Nokelainen, T., & Suur-Inkeroinen, H. (2009). Competitive dynamics, strategic consistency, and organizational survival. Strategic Management Journal, 30(1), 45–60.

    Google Scholar 

  • Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. Journal of Finance, 72(4), 1785–1824.

    Google Scholar 

  • Lubatkin, M. (1987). Merger strategies and stockholder value. Strategic Management Journal, 8(1), 39–53.

    Google Scholar 

  • Meyer, C. B. (2008). Value leakages in mergers and acquisitions: Why they occur and how they can be addressed. Long Range Planning, 41(2), 197–224.

    Google Scholar 

  • Minor, D., & Morgan, J. (2011). CSR as reputation insurance: Primum non nocere. California Management Review, 53(3), 40–59.

    Google Scholar 

  • Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22(4), 853–886.

    Google Scholar 

  • Morck, R., Shleifer, A., & Vishny, R. W. (Eds.). (1988). Characteristics of targets of hostile and friendly takeovers. Chicago: University of Chicago Press.

    Google Scholar 

  • Öberg, C., Henneberg, S. C., & Mouzas, S. (2007). Changing network pictures: Evidence from mergers and acquisitions. Industrial Marketing Management, 36(7), 926–940.

    Google Scholar 

  • Panchal, S., & Cartwright, S. (2001). Group differences in post-merger stress. Journal of Managerial Psychology, 16(6), 424–433.

    Google Scholar 

  • Rejda, G. E., & McNamara, M. (2016). Principles of risk management and insurance (13th ed.). Essex: Pearson.

    Google Scholar 

  • Rogan, M. (2014). Too close for comfort? The effect of embeddedness and competitive overlap on client relationship retention following an acquisition. Organization Science, 25(1), 185–203.

    Google Scholar 

  • Rogan, M., & Greve, H. R. (2015). Resource dependence dynamics: Partner reactions to mergers. Organization Science, 26(1), 239–255.

    Google Scholar 

  • Rowley, T. J. (1997). Moving beyond dyadic ties: A network theory of stakeholder influences. Academy of Management Review, 22(4), 887–910.

    Google Scholar 

  • Scalet, S., & Kelly, T. F. (2010). CSR rating agencies: What is their global impact? Journal of Business Ethics, 94(1), 69–88.

    Google Scholar 

  • Schneider, S. C., & Roger, L. M. D. (1992). A psychoanalytic reading of hostile takeover events. Academy of Management Review, 17(3), 537–567.

    Google Scholar 

  • Schnietz, K., & Epstein, M. (2005). Exploring the financial value of a reputation for corporate social responsibility during a crisis. Corporate Reputation Review, 7.

  • Schwert, G. W. (2000). Hostility in takeovers: In the eyes of the beholder? The Journal of Finance, 55(6), 2599–2640.

    Google Scholar 

  • Serdar Dinc, I., & Erel, I. (2013). Economic nationalism in mergers and acquisitions. Journal of Finance, 68(6), 2471–2514.

    Google Scholar 

  • Shiu, Y.-M., & Yang, S. (2017). Does engagement in corporate social responsibility provide strategic insurance-like effects? Strategic Management Journal, 38(2), 455–470.

    Google Scholar 

  • Shleifer, A., & Summers, L. H. (1988). Breach of trust in hostile takeovers. In A. J. Auerbach (Ed.), Corporate takeovers: Causes and consequences. Chicago, IL: University of Chicago Press.

    Google Scholar 

  • Simons, T. (2002). Behavioral integrity: The perceived alignment between managers words and deeds as a research focus. Organization Science, 13(1), 18–35.

    Google Scholar 

  • Spence, M. (1978). Job market signaling. In P. Diamond & M. Rothschild (Eds.), Uncertainty in economics (pp. 281–306). New York: Academic Press.

    Google Scholar 

  • Spence, M. (2002). Signaling in retrospect and the informational structure of markets. American Economic Review, 92(3), 434–459.

    Google Scholar 

  • Stern, I., Dukerich, J. M., & Zajac, E. (2014). Unmixed signals: How reputation and status affect alliance formation. Strategic Management Journal, 35(4), 512–531.

    Google Scholar 

  • Stiglitz, J. E. (2000). The contributions of the economics of information to twentieth century economics. The Quarterly Journal of Economics, 115(4), 1441–1478.

    Google Scholar 

  • Turban, D. B., & Greening, D. W. (1997). Corporate social performance and organizational attractiveness to prospective employees. Academy of Management Journal, 40(3), 658–672.

    Google Scholar 

  • Vergne, J., Wernicke, G., & Brenner, S. (2018). Signal incongruence and its consequences: A study of media disapproval and CEO overcompensation. Organization Science, 29(5), 796–817.

    Google Scholar 

  • Wagner, T., Lutz, R. J., & Weitz, B. A. (2009). Corporate hypocrisy: Overcoming the threat of inconsistent corporate social responsibility perceptions. Journal of Marketing, 73(6), 77–91.

    Google Scholar 

  • Welch, X., Pavićević, S., Keil, T., & Laamanen, T. (2019). The pre-deal phase of mergers and acquisitions: A review and research agenda. Journal of Management.

  • Yang, J., & Lander Michel, W. (2018). Bearers of (good) news: The impact of business news reports on acquirer short-term performance. In F. Sydney & L. C. Cary (Eds.), Advances in mergers and acquisitions (Vol. 17, pp. 95–117). Bingley: Emerald Publishing Limited.

    Google Scholar 

  • Zerbini, F. (2017). CSR initiatives as market signals: A review and research agenda. Journal of Business Ethics, 146(1), 1–23.

    Google Scholar 

  • Zhu, H., Ma, X., Sauerwald, S., & Peng, M. W. (2019). Home country institutions behind cross-border acquisition performance. Journal of Management, 45(4), 1315–1342.

    Google Scholar 

  • Zollo, M., & Meier, D. (2008). What is M&A performance? Academy of Management Perspectives, 22(3), 55–77.

    Google Scholar 

Download references

Funding

This work is supported by National Nature Science Foundation of China (No. 71602128); China University of Political Science and Law Fund (1000/10819120).

Author information

Authors and Affiliations

  1. School of Business, China University of Political Science and Law, No. 25 Xitucheng Lu, Haidian District, Beijing, 100088, China

    Tingting Zhang

  2. International School of Economics and Management, Capital University of Economics and Business, No. 121 Zhangjia Lukou, Fengtai District, Beijing, 100070, China

    Zhengyi Zhang

  3. School of Business, The University of Sydney, Rm 4104 H70 - Abercrombie Building, Sydney, NSW, 2006, Australia

    Jingyu Yang

Authors
  1. Tingting Zhang
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Zhengyi Zhang
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Jingyu Yang
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Zhengyi Zhang.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Zhang, T., Zhang, Z. & Yang, J. When Does Corporate Social Responsibility Backfire in Acquisitions? Signal Incongruence and Acquirer Returns. J Bus Ethics 175, 45–58 (2022). https://doi.org/10.1007/s10551-020-04583-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-020-04583-5

Keywords

Search

Navigation