Sustainability at the Deal Table: An Event Study of 99 Majority-Stake Acquisitions and the Limits of ESG as a Stand-Alone Value Driver

Abstract

The growing expectation for firms to improve across various Environmental, Social, and Governance (ESG) areas feeds into the longstanding debate over whether investing into ESG creates or destroys shareholder value, reflecting the classic divide between the stakeholder- and shareholder-centric perspectives (Fridman, 1970; Freeman, 1984). As there is no clear consensus in existing literature, this thesis sets out to examine whether, and how, the ESG characteristics of target firms can explain value creation for acquiring firms in mergers and acquisitions (M&A). To explore this relationship, the thesis analyzed four event study regressions (CAR [-1,+1] and BHAR1/BHAR2) covering 99 majority-stake deals from 2011-2023 obtained from the LSEG Datastream database. In doing so, the thesis finds no statistically significant evidence that acquiring either high-ESG or low-ESG leads to value creation or destruction (p ≈ 0,79; 0,63; 0,59). Additionally, the analysis finds that acquirers do not meaningfully experience value creation or destruction based on either the actual (p ≈ 0,38; 0,63; 0,57) or absolute (p ≈ 0,13; 0,96; 0,52)difference in ESG scores relative to the target firm. These findings are best explained by Milton Friedman’s (1970) shareholder-primacy perspective, suggesting that ESG is not a direct source of value creation. We find some support for the stakeholder value maximization view (Jensen, 2002), particularly in relation to the social pillar scores (p ≈ 0,06). The findings do not support the overinvestment hypothesis, as high ESG acquisitions show no signs of resulting in excessive or unjustified spending. The empirical evidence of the thesis shows that target ESG alone does not provide a reliable basis for acquiring firms to optimize value creation in M&A. Instead, ESG should serve as a contextual guide for managers and shareholders in assessing potential targets.