ESG performance, a driver for shareholder value creation? Evidence from mergers and acquisitions

Abstract

With an increasing demand for firms to become more sustainable, business managers are increasingly using merger and acquisition (M&A) investments as a tool to enhance both environmental, social, and governance (ESG) performance and corporate financial performance (CFP). This study aims to further understand the impact of ESG performance as a factor for creating shareholder value for the acquirers by 1) examining the impact of target firms' ESG performance on acquirer abnormal returns and 2) examining whether high ESG performing targets can help enhance the ESG performance of the acquirer. Using a sample of European and North American M&A transactions from 2004 to 2021, this study applies the event study methodology and finds evidence that target firms' ESG performance positively influences the acquirers' abnormal returns, as well as enhances the acquirers' post-transactional ESG performance. Applying the theoretical framework of stakeholder theory, the business case for sustainability, and the resource-based view, the findings of this thesis posit that target firms' ESG performance has a considerable impact on the acquiring firms' shareholders in creating value and increasing shareholder wealth.