The impact of ESG distance on mergers and acquisitions

Ning Tang, Xiaodong Xu, Yuan-Teng Hsu and Chih-Yung Lin

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: In this study, we utilize the most recent ESG (Environmental, Social, and Governance) data to calculate the ESG distance between acquiring and target firms, subsequently assessing its impact on merger outcomes. Our analysis suggests that deals with a larger ESG distance are associated with reduced cumulative abnormal returns (CARs) around the deal announcements. We find that, following the Kyoto Protocol in 2005, counterparties with larger ESG distances are less favored by investors. This suggests that the market perceives significant ESG distance as a potential impediment to seamless post-merger integration. Notably, a pronounced acquirer-target ESG distance diminishes the propensity for mergers, especially when target firms with more bargaining power during the negotiation. In the long-term performance of acquiring firms, we discern that ESG disparity reduces firm performance and increases crash risk.

Keywords: ESG distance; M&as; Deal initiation; Announcement returns; Kyoto protocol (search for similar items in EconPapers)
JEL-codes: G14 G32 G34 Q51 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006094

DOI: 10.1016/j.irfa.2024.103677

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