How do changes in Environmental, Social and Governance (ESG) scores influence banks' systemic risk contribution? Using a dynamic panel model, we document a beneficial impact of the ESG Combined Score and Governance pillar on banks' contribution to system-wide distress analysing a panel of 367 publicly listed banks from 47 countries over the period 2007-2020. Stakeholder theory and theory relating social performance to expected returns in which enhanced investments in corporate social responsibility mitigate bank specific risks explain our findings. However, only better corporate governance represents a tool in reducing bank interconnectedness and maintaining financial stability. The results are robust to alternative measures of systemic risk, both contribution and exposure, as well as when estimating a static model. Our findings stress the importance of integrating banks' ESG disclosure into regulatory authorities' supervisory mechanisms as qualitative information.
External growth strategies face crucial barriers when taken into consideration for investing if the involved companies are not audited. The integrity of a company’s financial information, its control systems, and its sustainable behavior represent cornerstones when participating in mergers and acquisitions (henceforth M&As). Thus, the audit function became a must and its role increased over the years, becoming an intrinsic part of faithfully disclosing financial and nonfinancial information (sustainable reporting included). M&As are ideal when the need for rapid innovation is required, in order to maintain or develop a sustainability policy. Given the environmental issues, we analyzed a sample of 1491 target companies listed on Bucharest Stock Exchange, clustered into three categories: polluters, medium polluters, and low polluters. The study reveals that the investors’ decision to purchase a certain amount of stake in target companies is influenced by the audit opinion and the sector in which they operate, depending on their pollution status.
Economic entities get involved in mergers and acquisitions (M&As) because they are interested in external growth strategies which can lead to an increase in the wealth of the shareholders of the participating entities. In M&As, from an acquirer or a target’s perspective, a company brings its resources, which can be material or immaterial (knowledge). In the post-M&A phase, through the integration process the shareholders expect synergy gains, or that the combined firms to report efficiency gains higher than if they would activate separately. In nowadays, in a boundaryless economy, one of the most appreciated resources is knowledge. In this respect, the intangible assets, in general, and patents, in particular, are the accounting representation of knowledge in a company. They are also considered to be predictors for the deal value paid to the target company. To those we add the size of the target company, its core activity and the value of the research and development expenses, the latter being a significant mediator variable for the proposed models.
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