Targeted Philanthropy: Evidence from M&As

Abstract

I show how firms optimize the allocation of charitable funds around investments that require external stakeholder support, such as mergers and acquisitions. Acquirers increase donations to target‐related charities before making a takeover offer, but scale funds back after withdrawing from a deal. Firms redistribute funds from nontakeover‐related areas to target insider–affiliated charities, employee communities, and counties with a regulatory presence. Targeted donations that encourage blockholder reciprocity and employee commitment are associated with better deal performance through decreased merger premiums and lower integration costs. Overall, the results highlight firms’ use of philanthropy to manage stakeholder relations in takeover decisions.