The effect of environmental, social and governance score on mergers and acquisitions performance
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2024-07-01
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en
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This paper examines whether ESG activities of target companies affect the ESG score and financial performance of acquirers by looking at mergers and acquisition deals of firms in 45 countries and 11 different industries. It further explores if this effect depends on the initial ESG level of the acquirer by dividing the targets and the acquirers into groups based on their ESG level. The results show that acquirers do not see an increase in ESG after acquiring a high-ESG target and even see a significant decrease in return on assets (at the 90% confidence level) compared to a group of non-acquirers. However, the effect of acquiring a high-ESG target varies depending on the ESG level of the acquirer. After dividing the acquirers into a low- and a high-ESG group, the low-ESG acquirers saw a significant increase in ESG scores post-acquisition (at the 95% confidence level) compared to high-ESG acquirers. No significant effect was found on the return on assets and return on equity for low-ESG acquirers. Additional analysis also showed that while low-ESG acquirers could potentially benefit from choosing high-ESG targets, they usually pick targets that have a lower ESG score. These findings suggest that, although ESG does not significantly impact the financial performance of mergers and acquisitions, low-ESG acquirers could strategically choose high-ESG targets to increase their own ESG score.
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Faculteit der Managementwetenschappen