Acquisitions and Social Capital
Posted: 14 Oct 2020
Date Written: August 25, 2020
We find that when an acquirer is headquartered in a high social capital state in the US, it has a higher cumulative abnormal return (CAR) around an acquisition announcement. A one standard deviation increase in social capital is associated with a 3.63% increase in the standard deviation of the announcement period CAR, which is comparable to the effect of corporate governance in Masulis et al. (2007). This effect is robust and incremental to the effect of corporate social responsibility. Acquirers in high social capital states are also more likely to buy private targets with equity, less likely to acquire firms in unrelated industries, and less likely to be a serial acquirer. Further, we find that the effect of social capital on the CAR is much stronger when monitoring is weak. We conclude that social capital reduces the agency cost that is associated with an acquisition.
Keywords: acquisition; mergers; social capital; culture; M&A
JEL Classification: G34, M14, G41
Suggested Citation: Suggested Citation