LAUSR

Abstract A modern view of stakeholder theory considers that ethical behaviour and profit are not contradictory. Under this framework and in the Merger and Acquisitions context we would like to investigate whether companies with well-developed Corporate Social Responsibility engage stakeholders in a better manner and, thus, benefit from more effective acquisition processes and, as a result, better financial performance in the post-deal periods. Within this context, our paper aims to investigate the effect of Corporate Social Responsibility measured in terms of popular Environmental, Social and Governance scores on Mergers and Acquisitions performance. Based on more than 6500 initial deals, we disentangle the short- and long-term effects related to post-merger performance, by considering several econometric approaches, including event study and pooled regression. Our results indicate that sustainability factors in Mergers and Acquisitions are significantly correlated with long-term performance, and we observe evident improvements of financial ratios in the long run. Given the complexity of Mergers and Acquisitions operations and the challenges of Corporate Social Responsibility integration into the corporate culture of the acquirer, we realise that the short-term effects related to Corporate Social Responsibility component are irrelevant. After the completion of Mergers and Acquisitions deals, we also confirm improvement in terms of Environmental, Social and Governance scores for companies involved in the deal. In terms of policy implications, we assess that to obtain the best final outcome of the acquisition, managers should consider that the value for shareholders in terms both of financial and sustainability performance in the post-merger period is higher if the bidder company starts with a high sustainability level.