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The effect of target’s CSR performance on M&A deal premiums: a case for service firms

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Abstract

In this study, we examine the effect of corporate social responsibility (CSR) performance on mergers and acquisitions (M&A) deal premiums. More precisely, we explore the value enhancing role of target’s pre-acquisition CSR performance at an M&A transaction by focusing on the deal premiums. We also examine whether firms in the service industries experience a higher deal premium due to their CSR performance compared to firms in other industries. We use several data sources (i.e. MSCI ESG KLD STATS, FactSet, Compustat and CRSP) to compile the final sample of the study, 277 completed acquisitions over the period 1996–2018. We use ordinary least square regression to estimate empirical models and find that target’s pre-acquisition CSR performance is positively related to deal premium. Moreover, the moderation analysis indicates that the positive effect of targets’ CSR performance on deal premium is more profound for firms operating in the service industries than those in non-service industries. The findings of the study is robust to different operationalizations of deal premium. Additionally, examining the positive and negative CSR attributes separately, we reveal consistent evidence with the prediction that positive CSR involvement of target firms increases the deal premium.

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Acknowledgements

This study was supported by William F. Harrah College of Hospitality at University of Nevada, Las Vegas [Summer Research Program, 2020]. We thank College of Hospitality at UNLV for their research support.

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  1. William F. Harrah College of Hospitality, University of Nevada Las Vegas, Las Vegas, USA

    Ozgur Ozdemir & Fatemeh Binesh

  2. Department of Tourism Administration, Boğaziçi University, Istanbul, Turkey

    Ezgi Erkmen

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  1. Ozgur Ozdemir
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Appendix

Appendix

KLD STATS database surveys a wide array of CSR-related issues as listed in Table 7. CSR performance indicators in KLD STATS are scored using a binary system. If a company meets the assessment criteria established for an indicator, then this is coded with a “1”. If the company does not meet the assessment criteria, then the indicator is coded with a “0”. If a particular indicator is not researched for a company in a particular year, it is coded with “NR” for not researched. Please see the example in Table 8 below to see how the Net-CSR is calculated using these scores for individual indicators. Assume Company X meets the following criteria in KLD STATS strengths and concerns across the seven categories in a particular year as shown in Table 8.

Table 7 MSCI ESG KLD Stats Social Ratings
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Company X has been found to paying attention to 15 CSR strength indicators, and was assigned a score of 1 for each strength indicator making it CSR-Strengths score 15 for that year. Likewise, the table shows that Company X has been red-flagged for 8 CSR concern indicators by the KLDS STATS researchers, and each of this concern indicator is assigned a score of 1 making the CSR-Concerns score 8. Thus, the overall CSR performance for the year is calculated by taking the difference between CSR-Strengths and CSR-Concerns that is 15–8 = 7. All other indicators have either not met the criteria to be a strength (concern) or not been researched for the Company X.

Table 8 Construction of Net-CSR
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Ozdemir, O., Binesh, F. & Erkmen, E. The effect of target’s CSR performance on M&A deal premiums: a case for service firms. Rev Manag Sci 16, 1001–1034 (2022). https://doi.org/10.1007/s11846-021-00471-y

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