The role of ESG in cross-border M&As: A study of developed market acquirers and emerging market targets- An empirical analysis exploring the impact of pre- and post-merger ESG performance on acquisition premiums and long-term firm performance

Abstract

This thesis examines the impact of Environmental, Social, and Governance (ESG) factors on cross-border mergers and acquisitions (M&As) involving developed market acquirers and emerging market targets. Utilizing a dataset of 206 transactions spanning from 2002 to 2023, we assess the influence of ESG performance on acquisition premiums and the long-term performance of acquiring firms. Our findings reveal that higher ESG scores of target companies is correlated with increased acquisition premiums, suggesting that these targets are perceived as lower risk- and more valuable investments. However, the effect of pre-merger ESG score of the target on postmerger ESG performance of the combined entity are inconclusive, underscoring the complexities of integrating ESG practices. Furthermore, while strong ESG profiles positively impact stock prices one year post-acquisition, this effect is moderated by broader economic and strategic factors. This research underscores the strategic importance of ESG considerations in the M&A context within emerging markets and highlights the need for further investigation into sector-specific impacts and the sustained effects of ESG practices.