Beyond Linear: The Relationship between Corporate Social Responsibility and Market Reactions to Cross-Border Mergers and Acquisitions

ABSTRACT

By combining the stakeholder theory and shareholder theory, this study examines whether corporate social responsibility (CSR) influences market reactions to cross-border mergers and acquisitions (M&A) announcements. This study employs a sample of cross-border M&A conducted by Chinese-listed companies from 2010 to 2018. We find that the impact of CSR on cumulative abnormal returns (CAR) around the announcement of cross-border M&A is not monotonically positive or negative demonstrated in previous literatures, but a nonlinear U-shaped relation. This finding shows that compared with moderate level of CSR, acquirers with extremely low or high levels of CSR realize higher CAR, indicating the complementarity of the two long competitive theories. The U-shaped relation remains across a three-step procedure significance test and several robustness tests. This study advances the debate concerning which theory best explains the effect of CSR on CAR theoretically and provides a possible explanation for the existing contradictory evidences empirically owing to ignoring the level of CSR.

KEYWORDS:

• Corporate social responsibility
• cross-border mergers and acquisitions
• stakeholder theory
• shareholder theory

JEL:

• G34
• M14
• G14

Notes

1. When the announcement date is not within the trading day, we consider the most recent trading day after announcement date as the event day.

2. The mean VIF of all regressions concluding robustness tests is below the rule-of-thumb cutoff of 10.

3. We also conduct other tests with alternative event windows, such as CAR [−1,1], CAR [−3,3]. Moreover, the buy-and-hold average abnormal returns (BHAR) is also employed to examine the robustness of results. All findings support the U-shaped relationship between CSR and CAR.

Additional information

Funding

This work was supported by the Key Program of National Social Science Foundation of China under Grant [No. 18ZDA095], National Social Science Foundation of China under Grant [No. 20BGL090] and the Fundamental Research Funds for the Central Universities under Grant [DUT19RW208].