The M&A Greenium: Does Target Environmental Performance Affect the M&A Premium?

Abstract

This thesis empirically investigates if buyers pay a higher premium for target environ- mental sustainability efforts in M&A transactions. Emissions, innovation, and resource use ratings measure these sustainability efforts. With a global sample of 558 cash-for- stock majority acquisitions of public targets between January 01, 2006, and November 10, 2022, multivariate regression models are built and estimated with OLS. Results suggest no general relationship between target environmental performance and the M&A premium. For targets with R&D expenditure specifically, results show a positive relationship be- tween the three ratings and M&A premiums. The average buyer might not care about target environmental performance, price it outside the premium, believe it conveys no reliable information, or have no free synergies. Alternatively, there might be a more com- plex or non-linear relationship between environmental performance and premiums, ratings might suffer from self-selection issues, or ESG performance might not alleviate informa- tion asymmetries. The analysis contributes to the theoretical literature by furthering our understanding of premiums and their relationship to sustainability considerations. More- over, it provides insights into the impact of publications, suggestions, and rules by NGOs, international organizations, and policy-makers on the M&A market.