Is Social Capital Valuable? Evidence from Mergers and Acquisitions

Using comprehensive social capital data of U.S. counties from the Social Capital Project, we show evidence that the county-level social capital where the acquirer is located is positively related to the acquirer’s announcement returns. This finding withstands alternative model specifications and remains robust to endogeneity concerns. We also document that social capital has a more pronounced effect on the acquirer’s announcement returns when the supermajority to approve a merger, acquirer size, the deal size, and the ratio of stock payment are larger and the percentage of blockholder ownership is smaller. Additionally, we find that social capital creates more synergies, enhances acquirers’ long-term performance, and shortens deal completion duration. Overall, our results support the shareholder value maximization view that social capital constrains managerial opportunistic and selfserving behaviors, which leads to better acquisition outcomes.