Corporate social responsibility and retail investor attention around M&A announcements
Kallio, Helmi (2022-08)
Kallio, Helmi
08 / 2022
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2022081655518
https://urn.fi/URN:NBN:fi-fe2022081655518
Tiivistelmä
In recent years, corporate social responsibility (CSR) and its impact on firm value and investors’
decisions have gained popularity in finance research. Furthermore, high level of CSR has been
found to explain high abnormal returns around M&A announcements, a type of event which is
still an unresolved anomaly. Another stream of research that has gained popularity relates to
investor attention and its impact on stock returns. Investor attention has also been detected to
have a role in abnormal announcement returns. However, until this day, it has not been
studied whether investor attention is driven by CSR and how they jointly influence merger
announcement returns.
This event study uses 86 public U.S. mergers conducted between the years 2010 and 2020 to
investigate whether investor attention to a firm involved in a merger depends on the acquiror
firm’s CSR level. Furthermore, it is examined if acquiror’s CSR level and investor attention have
an impact on the abnormal announcement returns. Based on prior research, the used proxy
for investor attention is Google search volume index which measures the search frequency of
firm stock tickers around M&A announcements. In addition, the used proxy for acquiror firm’s
CSR level is the ESG score retrieved from Thomson Reuters. Prior research suggests that high
CSR firms should gain more investor attention since they seem to value sustainability and that
both high CSR firms and firms that gain high investor attention should earn higher abnormal
returns.
Based on the results, investors pay more attention to high CSR acquirors in relation to low CSR
acquirors. This is in line with prior research, suggesting that investors do not only take financial
gains into account but also value sustainability in decision-making. However, high CSR
acquirors or targets acquired by high CSR firms are not observed to gain higher returns
compared to low CSR firms. When it comes to investor attention, high investor attention is
discovered to result in higher abnormal returns for targets, which is consistent with prior
research. The impact is observed to be opposite for acquirors. These findings of the mixed
impact of investor attention on acquiror and target firm returns are interesting and require
more research. All in all, however, these findings suggest that investor attention affects stock
market reactions. Finally, investor attention is detected to be higher for targets than acquirors
and the attention also persists comparably high on the days following M&A announcements,
supporting some prior research indicating that retail investor attention is not immediate.
decisions have gained popularity in finance research. Furthermore, high level of CSR has been
found to explain high abnormal returns around M&A announcements, a type of event which is
still an unresolved anomaly. Another stream of research that has gained popularity relates to
investor attention and its impact on stock returns. Investor attention has also been detected to
have a role in abnormal announcement returns. However, until this day, it has not been
studied whether investor attention is driven by CSR and how they jointly influence merger
announcement returns.
This event study uses 86 public U.S. mergers conducted between the years 2010 and 2020 to
investigate whether investor attention to a firm involved in a merger depends on the acquiror
firm’s CSR level. Furthermore, it is examined if acquiror’s CSR level and investor attention have
an impact on the abnormal announcement returns. Based on prior research, the used proxy
for investor attention is Google search volume index which measures the search frequency of
firm stock tickers around M&A announcements. In addition, the used proxy for acquiror firm’s
CSR level is the ESG score retrieved from Thomson Reuters. Prior research suggests that high
CSR firms should gain more investor attention since they seem to value sustainability and that
both high CSR firms and firms that gain high investor attention should earn higher abnormal
returns.
Based on the results, investors pay more attention to high CSR acquirors in relation to low CSR
acquirors. This is in line with prior research, suggesting that investors do not only take financial
gains into account but also value sustainability in decision-making. However, high CSR
acquirors or targets acquired by high CSR firms are not observed to gain higher returns
compared to low CSR firms. When it comes to investor attention, high investor attention is
discovered to result in higher abnormal returns for targets, which is consistent with prior
research. The impact is observed to be opposite for acquirors. These findings of the mixed
impact of investor attention on acquiror and target firm returns are interesting and require
more research. All in all, however, these findings suggest that investor attention affects stock
market reactions. Finally, investor attention is detected to be higher for targets than acquirors
and the attention also persists comparably high on the days following M&A announcements,
supporting some prior research indicating that retail investor attention is not immediate.