The Role of Environmental Considerations in International Acquisition Performance

Recent research suggests that the environmental and social performance of a target firm positively influences its acquirer economic gains, as reflected in market reactions to acquisition announcements. However, previous studies indicate that firm investments aiming to mitigate negative environmental impacts may be perceived as misallocation of resources. This leaves unclear whether and when the acquisition of a target with a low environmental footprint will generate value gains for the acquirer. We shed light on this puzzle by identifying international acquisition deals characterized by certain configurations of factors that together bring about economic gains for the acquirer. We propose that such gains depend on the fit between the host country environmental regulations, the type of target acquired (clean vs dirty), and the bundle of capabilities of the acquirer. We study international acquisitions by French multinationals over 2007-2017. The results of our fuzzy set qualitative comparative analysis suggest that significant gains accrue to firms that invest in deals that favor the compliance with a strict regulatory context, either through the acquisition of clean targets or through the potential transfer of technical capabilities, in particular when the acquirer also has high social capabilities. By contrast, acquisitions consistent with regulatory arbitrage strategies are not likely to generate high returns. Our paper offers novel insights for research on firms’ responses to environmental regulations, on the financial performance implications of environmental investments and international acquisitions, and on non-market strategy.