ESG performance in Merger & Acquisition targets: check out our new article on finance and sustainable performance of listed firms!

Jonathan Taglialatela, PhD, CFA ; Francesco Testa ; Roberto Barontini ; Fabio Iraldo

Is there a difference between strategic and financial investors in terms of the target ESG performance? Is ownership concentration relevant to firms’ sustainable efforts? Does financial leverage impact firms’ ESG performance? Our research provides new evidence to help answer those critical questions.

We collected data on 19’496 M&A deals from Refinitiv and identified listed firms involved in an M&A operation that resulted in at least a 5% acquisition of the target’s equity. In a counterfactual research design, we matched those firms with similar firms that did not receive such investments and investigated the differences in ESG performance in the following years on a final sample of 2’056 firms.

Building on previous studies, we suggest that blockholders (investors with more than 5% of equity) aim to capture the long-term value intrinsic in ESG investments and thus have a strong incentive to monitor managers and ensure the implementation of ESG strategies. Therefore, they should positively impact a firm’s ESG performance. Our results show that M&A target firms have, on average, an ESG performance that is 2.5% higher than similar firms that did not receive this investment.

Further, we discussed why ESG investments might be more easily financed with equity rather than debt (more details in the article!). Accordingly, our analysis shows that firms not increasing leverage after the M&A deal have an ESG performance, on average, 4.8% higher than firms increasing their debt levels.

?At last, practitioners often divide M&A investors into strategic and financial, assuming that the latter have a short-term orientation and mainly aims at profit maximization. In terms of ESG performance, we suggest that such difference is irrelevant because financial investors have adapted to shifting client preferences about sustainable investments. Accordingly, our results show that no significant evidence exists between these two types of investors.

This evidence can be a valuable guide for investors who must integrate ESG into their portfolios and policymakers who must design policies to accelerate the sustainable transition.

The full text is available at https://rdcu.be/c13M8 as part of the Springer Nature Content Sharing Initiative.

When this free-download offer expires, you can request the full text of the article @ my Researchgate Page: https://www.researchgate.net/publication/366501130_Blockholders_and_the_ESG_performance_of_MA_targets