The effect of ESG on value creation from mergers and acquisitions. What changed during the COVID-19 pandemic?
- 22 March 2021
- journal article
- research article
- Published by Emerald in Corporate Governance: The international journal of business in society
- Vol. 21 (6), 1117-1141
- https://doi.org/10.1108/cg-10-2020-0448
Abstract
The purpose of this study is to investigate the relationship between environmental, social and governance (ESG) performance and shareholder wealth in the context of mergers and acquisitions (M&As) before and during the coronavirus (COVID-19) pandemic. This paper uses a sample of 889 completed M&As announced by US firms between 1 January 2018 and 31 July 2020. Announcement abnormal returns are estimated using an event study methodology and the relation of ESG performance to shareholder value creation is tested with univariate and multivariate cross-sectional regressions. This study provides evidence for a significant negative value effect of ESG performance for the shareholders of acquiring firms during the entire sample period. The negative effect appears to be stronger, as the onset of the COVID-19 crisis. This suggests that, during the pandemic-driven economic turmoil, the costs of sustainability activities outweigh any possible gains, providing evidence in support of the overinvestment hypothesis. The results of the study have important implications for firms, investors and policymakers. Firms should be more cautious with regard to extensive investments in ESG activities, particularly during economic turmoil. For shareholders, the results suggest that ESG engagement is not a resilience factor in an exogenous shock such as the COVID-19 pandemic. In terms of policymaking, the sustainability disclosure framework should remain voluntary allowing firms to report material ESG-related issues. The main limitation of the study is related to data availability regarding ESG performance. To the best of the knowledge, this is the first study that investigates the effect of ESG performance on shareholder value in the market for corporate control before and during the COVID-19 pandemic.Keywords
This publication has 102 references indexed in Scilit:
- Corporate social responsibility and stakeholder value maximization: Evidence from mergersJournal of Financial Economics, 2013
- Climate Change and Financial Performance in Times of CrisisBusiness Strategy and the Environment, 2013
- Corporate social responsibility, firm value and financial performance in BrazilSocial Responsibility Journal, 2011
- Corporate Governance and Firm Value: The Impact of Corporate Social ResponsibilityJournal of Business Ethics, 2011
- Corporate Social Responsibility as a Conflict Between ShareholdersJournal of Business Ethics, 2010
- Individual and Corporate Social ResponsibilityEconomica, 2009
- Corporate Governance and Acquirer ReturnsThe Journal of Finance, 2007
- Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate MeasuresFinancial Management, 2006
- Global diversification and bidder gains: A comparison between cross-border and domestic acquisitionsJournal of Banking & Finance, 2005
- Using daily stock returns: The case of event studiesJournal of Financial Economics, 1985