Stakeholder preservation or appropriation? The influence of target CSR on market reactions to acquisition announcements

• Main Authors: TONG, Li, WANG, Heli, XIA, Jun
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Business Law, Public Responsibility, and Ethics; Organizational Behavior and Theory; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6513; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7512/viewcontent/Stakeholder_preservation_pv.pdf
• Institution: Singapore Management University

This study examines how target corporate social responsibility (CSR) affects the economic gains for acquirers, as reflected in market reaction to acquisition announcement, from two distinct perspectives: stakeholder preservation versus stakeholder appropriation. The stakeholder preservation perspective suggests that positive market reaction to an acquisition stems from potential new value creation by honoring implicit contracts and maintaining good relationships with target stakeholders. By contrast, the stakeholder appropriation perspective posits that positive market reaction is primarily derived through wealth transfer to acquirers by defaulting on implicit contracts with target stakeholders. Using a dataset of acquisitions in the US, we find that target CSR is positively associated with acquirer abnormal returns upon acquisition announcement. Moreover, stakeholder value congruence between the merging firms strengthens this positive relationship, whereas business similarity between them weakens it. These findings align with the stakeholder preservation perspective and challenge the stakeholder appropriation.