Is Corporate Social Responsibility a Catalyst in Distressed Mergers and Acquisitions? The Indian Evidence

Our study examines the role of corporate social responsibility (CSR) in mergers and acquisitions (M&A) decisions and processes when target firms are financially distressed. We focus on the M&A market in India, where CSR spending is mandatory for firms. We examine three research questions focusing on whether CSR spending and compliance by distressed targets facilitate (i) deal completion likelihood, (ii) acquisition percentage, and (iii) deal completion time. We consider firms' overall CSR spending, voluntary CSR spending (the portion of overall CSR spending above their prescribed amount), and individual CSR dimensions. Using 375 Indian distressed M&As during 2015-2020, we find that distressed targets are more attractive target choices if they spend more on overall CSR and less on social CSR. Greater acquirer-target CSR similarity favorably impacts deal completion for distressed targets. Secondly, the acquisition percentage is lower when the acquirer and the distressed targets spend more on CSR overall. Lastly, high voluntary CSR spending by the distressed target slows down deal completion, confirming the CSR overinvestment theory. Our results establish the importance of CSR spending, compliance, and individual CSR dimensions on target choice and deal characteristics.