LBO and firm ESG commitment

Fidèle Shukuru Balume (), Jean-François Gajewski () and Tao-Hsien Dolly King
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Fidèle Shukuru Balume: MAGELLAN - Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon
Jean-François Gajewski: MAGELLAN - Laboratoire de Recherche Magellan - UJML - Université Jean Moulin - Lyon 3 - Université de Lyon - Institut d'Administration des Entreprises (IAE) - Lyon
Tao-Hsien Dolly King: UNC - University of North Carolina [Charlotte] - UNC - University of North Carolina System

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Abstract: This study analyzes the impact of leveraged buyouts (LBOs) on firms' environmental, social and governance (ESG) commitments. Design/methodology/approach This study uses a comprehensive sample of LBO target firms and their comparable firms to empirically examine the link between LBO and ESG policy using a sample of US firms from 2010 to 2023. Findings Contrary to the hypothesis that companies under the LBO have higher ESG levels, our results reveal that these companies exhibit lower ESG scores than their comparable firms immediately prior to the LBO deal. Looking at the post-deal period, we find a significant decrease in the ESG commitment of the target firms. Originality/value The post-deal reduction in ESG commitment can be attributed to greater financial constraints. The heightened financial pressure stemming from the use of substantial debt to finance the LBO leads companies to prioritize short-term profitability over long-term sustainable investments. These findings underline the importance of close monitoring of ESG practices in LBO transactions by investors, regulators and other stakeholders to promote sustainable and responsible corporate management in the long term.

Keywords: financial structure; leveraged buyout; financial distress risk; ESG commitment (search for similar items in EconPapers)
Date: 2025-08-05
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Published in Managerial Finance, 2025, pp.1-28. ⟨10.1108/MF-08-2024-0647⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-05328960

DOI: 10.1108/MF-08-2024-0647

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