| dc.description.abstract | Using a sample of 762 international M&As, we find a positive effect of ESG performance
on deal premia. We find that resource use, human rights, and management are the most
important categories of ESG. These aspects might be more quantifiable and relevant,
making them easier to value in a transaction and more attractive to the acquirer. Targets
receive higher premiums from raising their resource use score by one standard deviation,
compared to raising the total ESG score by one standard deviation, suggesting that targets
are better off focusing on this category for raising premiums.
Furthermore, we find that the effect of ESG performance on deal premiums diminishes
when the target is in the upper tercile of analyst following and in deals with share payments.
This finding supports extant research in that ESG reduces information asymmetries and
facilitates risk mitigation. Since we find a positive relationship between premia and ESG
scores, we argue that ESG initiatives are valuable. ESG affects synergies, information
asymmetries, and risk mitigation, supporting the stakeholder view of ESG in that ESG is
valuable. Our results are largely robust to correcting for potential endogeneity issues and
other robustness tests.
We also find that targets and acquirers improve their score by about five and seven
points, respectively, when merging with a higher-scored firm. Such a substantial score
improvement suggests that the transfer of ESG-related capabilities such as knowledge,
culture, reputation, and relationships with stakeholders is possible, as previous literature
suggests. This finding leads us to argue that merging to attain better ESG performance
might potentially be a contributing motive for M&A itself. | en_US |
