M&A activity and ESG performance: evidence from China

Abstract

PurposeThis study explores the effect of mergers and acquisitions (M&As) on corporations' environmental, social and governance (ESG) performance and values in the Chinese financial market.Design/methodology/approachThis study collected data covering 158 Chinese listed companies that have successfully completed at least one M&A activity between 2011 and 2020. Fixed effect and random models based on the Hausman test are adopted to mitigate potential heterogeneity issues in the selection.FindingsResults show that acquiring targets with high ESG performance can help increase their own ESG performance, which in turn increases their market values. Heterogeneity and robustness tests also provide consistent results. Findings further confirm the bidirectional correlation between ESG and M&As, and then enrich related literature by suggesting the importance of utilizing M&As as a driver to increase corporate ESG performance.Originality/valueThis study embodies the practical implications of ESG and M&A. Managers, investors and policymakers can highly benefit from the results through practical applications.

Guest editorial: A short review of the role of ESG activities in business and research

“…The authors document that, in the long run, green bond issuers improve the financial and environmental performance of their firms, especially for multiple-time issuers and issuers operating in industries where the natural environment is financially material. Rahman and Wu (2024) explore the relationship between companies' involvement in ESG activities and merger and acquisition (M&A) outcomes in China. Following the results of empirical analysis, the authors conclude that acquiring targets with high ESG performance leads to an increase in bidders' ESG performance.…”

“…One of the research directions is related to the analysis of the carbon intensity of companies while constructing portfolios (Swinkels and Markwat, 2024). Rahman and Wu (2024) call for further investigation of the role of ESG performance and disclosure (and separate pillars) in M&A deals, as it has been observed that involvement in ESG activities significantly effects the relation between ESG strategy and corporate performance in the context of M&A activities. Lee et al (2024) call for further analysis of the effect of different economic conditions on the relationship between involvement in ESG activities and executive compensation schemes.…”

“…Rahman and Wu (2024) explore the relationship between companies' involvement in ESG activities and merger and acquisition (M&A) outcomes in China. Following the results of empirical analysis, the authors conclude that acquiring targets with high ESG performance leads to an increase in bidders' ESG performance.…”

ESG factors in M&A in India: Performance and market insights from 2010 to 2023

“…Recently, the Security Exchange Board of India (SEBI) has advised the top 1,000 listed companies based on market capitalization to disclose their ESG data in line with Business Responsibility and Sustainability Reporting (BRSR) Core 2023 (Joshi & Joshi, 2024;Nial & Parashar, 2024;Singhania & Saini, 2023;Firmansyah et al, 2023). The increased prominence assigned to ESG issues is highlighted by managers' increasing preference for incorporating ESG elements into their investment processes (Rahman & Wu, 2023;Zhou et al, 2022;Tampakoudis & Anagnostopoulou, 2020). As a crucial corporate endeavor, mergers and acquisitions (M&A) prompt various pertinent discussions in the financial and management spheres (Rahman & Wu, 2023).…”

“…The increased prominence assigned to ESG issues is highlighted by managers' increasing preference for incorporating ESG elements into their investment processes (Rahman & Wu, 2023;Zhou et al, 2022;Tampakoudis & Anagnostopoulou, 2020). As a crucial corporate endeavor, mergers and acquisitions (M&A) prompt various pertinent discussions in the financial and management spheres (Rahman & Wu, 2023). Thus, this study endeavors to explore how M&A affects ESG performance and market value of acquiring firms in India.…”