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Creating Value in M&A: Does ESG Performance Matter for Acquirer Returns?

In: Corporate Governance in the Banking and Financial Sector

Author

Listed:
  • Lauri Hiltunen

    (University of Vaasa)

  • Timothy King

    (University of Vaasa)

Abstract

Mergers and Acquisitions (M&A) are major corporate investments where information plays an important role in influencing deal outcomes. For a sample of 429 domestic and cross-border M&A transactions by US listed firms between 2010 and 2023, this chapter explores the relevance of environmental, social, and governance (ESG) performance, both acquirer and target, on M&A acquirers’ value creation. The results are mixed. Using a classic event study approach, we find initial evidence that acquirer announcement returns, while still negative on average, differ significantly for acquirers based on their ESG performance and when there are differences between acquirer and target ESG indicators. We find that acquirer returns are less negative when acquirers have higher ESG scores and when targets have high-ESG scores. Further analyzing deals according to acquirer and target-ESG scores we show that returns are least negative when the deal involves both a high-ESG acquirer and target but most negative when low-ESG acquirers acquire a high-ESG target. However, the significance of ESG as a factor influencing acquirer announcement returns disappears in a multivariate setting. This mixed result may be attributed to several factors, including ambiguity over the effects of ESG, changes in the importance of ESG over time, and, to some extent, the relatively small sample size.

Suggested Citation

  • Lauri Hiltunen & Timothy King, 2025. "Creating Value in M&A: Does ESG Performance Matter for Acquirer Returns?," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Timothy King & Jonathan Williams (ed.), Corporate Governance in the Banking and Financial Sector, chapter 0, pages 61-79, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-031-83353-3_4
    DOI: 10.1007/978-3-031-83353-3_4
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