Corporate Social Responsibility and Post-merger Labour Restructuring

Abstract

Using a unique panel of target firms in European countries, this paper examines how corporate social responsibility (CSR) affects employment policies after acquisitions. Surprisingly, I find that acquirers with greater CSR performance are more likely to lay off employees in target firms. My findings are primarily driven by the Social component. I further document a positive impact of acquirers’ social performance on targets’ labour productivity, technical efficiency, and staff costs. In addition, I show that socially responsible firms enjoy higher announcement returns, especially when they do more layoffs. These results are consistent with the cost-saving motive that higher labour costs induced by the implementation of CSR policies decrease the optimal level of employment in acquired targets. Overall, my paper contradicts the argument that socially responsible firms are inconsistent with value maximisation and shows that they are managed to maximise shareholder interests by engaging in more post-merger labour restructuring.