Acquisitions and Social Capital

Posted: 14 Oct 2020

See all articles by Ashrafee T Hossain

Ashrafee T Hossain

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Anand Jha

Wayne State University

Date Written: August 25, 2020

Abstract

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

Hossain, Ashrafee T and Jha, Anand, Acquisitions and Social Capital (August 25, 2020). Available at SSRN: https://ssrn.com/abstract=3680818

Ashrafee T Hossain (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Anand Jha

Wayne State University

Department of Finance
2771 Woodward Ave
Detroit, MI 48201
United States
9562852237 (Phone)

HOME PAGE: http://https://ilitchbusiness.wayne.edu/profile/ge3433

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