The impact of target's ESG score on acquirer's short and long-term performance change after M&A deals

Florian Moritz Pfister (Student)

Student thesis: Master's Thesis

Abstract

This study investigates M&A deals and the impact of the target’s ESG score on the acquirer’s short and long-term financial performance changes (measured by ROA, ROE, stock price, and stock volatility) by replicating the methodology of Feng (2021). The research is based on 136 M&A deals between 2000 and 2020. For the analysis, the percentage change in the acquirer’s performance is first regressed against the target’s ESG score, the acquirer’s ESG score and a combination of control variables. Second, an interaction term is introduced to explore if the influence of the target’s ESG score is affected by the acquirer’s own ESG level. Lastly, the acquirers are sorted into two groups of low and high-ESG score acquirers to omit the possible bias that acquiring a target with a high ESG score might have different effects on low or high ESG level acquirers. The results show no significant impact of the target’s ESG score on any of the dependent variables for all three regression models. However, upon examination of the individual ESG pillar scores, the social score shows a statistically significant impact on the long-term ROE change and the governmental score on the stock volatility change at a 90% confidence level. When examining the individual ESG scores and sorting the acquirers in low and high-quartile groups, the impact of the target’s environmental and social score on the acquirer’s long-term ROA change is significant at a 90% confidence level.