The impact of the non-financial reporting directive on acquisition performance

: a comparative study of EU and US acquiring firms

Abstract

This study examines whether acquiring firms subject to the EU’s Non-financial Reporting Direct ive (NFRD) experience significantly different acquisition performance compared to US acquiring firms not subject to the NFRD. A comparative study was conducted as disclosure of non-financial information remains largely voluntary in the US, while regulations in the EU mandating disclosure continue to evolve. To address the impact of the NFRD on acquisition performance, I examined acquisition performance through an Event study to assess short-term market reactions to announced deals (between 2018 and 2023) and a two-way fixed-effects difference-in-differences (DiD) estima tion coupled with Propensity Score Matching (PSM) to evaluate actual post-acquisition performance (between 2007 and 2023). The findings reveal that markets react more positively to announced deals for acquiring firms subject to the NFRD. They also reveal that stronger ESG performance has a negative effect on market reactions for acquiring firms not subject to the NFRD, while stronger ESG performance has a positive effect for firms subject to the NFRD. Conversely, acquiring firms subject to the NFRD exhibit weaker post-acquisition performance compared to acquirers not sub ject to the NFRD. However, strong ESG performance significantly mitigates this negative effect for acquirers subject to the NFRD in the first-year post-acquisition. These results suggest that while the NFRD reduces information asymmetry and enhances investor confidence, compliance costs may divert resources from effective post-acquisition integration. It also highlights that genuine ESG commitment acts as a value driver in M&A.

Date of Award	10 Jul 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José D. Garcia Revelo (Supervisor)