The effect of PWS arrangements on M&A activities

Dayan Huang, Aiju Kou, Chengyi Liu and Shanmin Liu

Finance Research Letters, 2023, vol. 52, issue C

Abstract: This paper investigates the effect of Payments for Watershed Services (PWS) on firms' mergers and acquisitions activities (M&A) in China. We find that PWS results in more M&A activities of firms. We attribute this to firms' increased operating risks following PWS by providing evidence that: (1) PWS increases firm-level environmental penalties in upstream areas; (2) PWS's positive effect on M&A is more pronounced in firms with more sewage discharge and environmental penalties; (3) The targets of increased M&A are more likely to be in non-polluting industries, and areas not affected by PWS; (4) PWS only increase M&A in upstream areas, but not in downstream. Our finding provides a plausibly causal effect of Payments for Watershed Services on firms' M&A activities.

Keywords: Payments for watershed services; Mergers and acquisitions; Environmental punishments (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322007905

DOI: 10.1016/j.frl.2022.103614

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