The Effects of Terrorism on Acquisitions and Innovation and the Impact of CSR on Performance During Traumatic Events

"This thesis studies the effects of terrorist attacks on acquisitions and innovation and the impact of corporate social responsibility (CSR) on the relation between terrorism and corporate performance.First, the thesis explores the impact of terrorist attacks on corporate acquisitions. It is found that firms located in terrorism-afflicted areas experience a lower likelihood of receiving takeover bids and attract a lower acquisition premium. The latter finding is reflected in lower target firm stock abnormal returns and synergy gains. Additionally, in terrorism-afflicted locations, withdrawn deals rise, and acquirers increase cross-border and cross-state acquisitions, implying that terrorism-affected target firms become less attractive. The results are attributed to higher safety uncertainty and fear due to terrorist attacks, leading to lower target firm labor productivity.Second, the thesis investigates the effect that terrorist attacks have on corporate innovation activities. The findings show that firms located in terrorism-afflicted areas experience a reduction in the number of patents, the number of citations, the patent's originality, and innovation value. Firms substantially decline innovation productivity following terrorist attacks. Additional tests suggest that in terrorism-stricken areas inventors are more likely to leave their firms and not to be replaced by their organizations. The study also provides evidence suggesting that the effect of terrorist attacks is due to the increase in economic uncertainties and raising concerns for personal security among employees. Importantly, these effects persist for up to three years after the terrorist attacks.Third, the thesis studies the impact of CSR on the relation between terrorism and performance. First, the study establishes a negative relation between terrorist attacks and firm performance. Second, the study provides strong evidence on the positive impact of CSR on the negative relation between terrorism and firm performance. The results are robust to controlling for corporate governance and performing a propensity score matching (PSM) analysis. Further analysis shows that high-CSR firms have higher gross margins, experience higher sales growth, and have sales per employee relative to low-CSR firms. Besides, such firms also have better stock performance.In sum, the results of the thesis provide evidence on the economic consequences of terrorism by examining the adverse impact of terrorism on acquisitions and innovation and the positive effect of CSR on the relation between terrorism and corporate performance.