Managing corporate climate change risk

: the link between carbon emissions and M&A activity

Abstract

This thesis studies the relationship between M&A activity and carbon risk, considering, at most, 183 deals between 2006 and 2023. First, it assesses the impact of carbon risk on merger likelihood. The findings suggest that (1) acquirors reporting on such a risk pre-merger are more likely to buy out firms that do so too, (2) firms subject to higher carbon risk are less likely to participate in deals and, thus, become acquirors or targets, and (3) acquirors subject to higher carbon risk pre-merger tend to buy out firms also subject to higher carbon risk pre-merger. Second, it investigates the relationship between targets’ pre-merger carbon risk and M&A deal-specific characteristics. The results prove that targets disclosing their carbon emissions pre-merger engage in higher-value and longer-duration deals (especially those from the U.S. or Canada) and that European targets subject to higher carbon risk pre-merger are more likely to engage in deals with larger values (the opposite is true for targets from the U.S. or Canada) and longer duration (the inverse is true for targets from the U.S.). Third, it explores the impact of acquirors’ pre-merger carbon risk on the short-term merger market response, concluding that the higher the acquirors’ carbon risk pre-merger, the lower the CARs around merger announcements. Finally, it analyses the impact of acquirors’ pre-merger carbon risk on the combined firms’ long-term post-merger sustainability performance. The findings point to acquirors with higher pre-merger carbon risk experiencing a higher increase in their ESG scores in the aftermath of the merger.

Date of Award	7 May 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)