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Do Companies Value ESG? An investigation of the potential relationship between ESG performance and deal premiums paid in acquisitions.

Carlsson, Jesper LU and Tenggren, Charlie LU (2022) NEKN02 20221
Department of Economics
Abstract
This paper sheds light on companies’ valuation of ESG performance by examining the potential impact that the ESG-score of the target firm has on bid premiums in Mergers & Acquisitions (M&A). While extensive research has been conducted on sustainable investing, no consensus regarding the influence of ESG performance on M&A activities has been reached. With a sample of 224 deals completed on the Northern European market between 2002-2022, various aspects of the ESG effect on deal premiums are evaluated through several regression models. The study could not conclude a significant relationship between ESG performance and deal premiums; however, a few other findings were obtained. Notably, when dividing the sample into subsamples of two... (More)
This paper sheds light on companies’ valuation of ESG performance by examining the potential impact that the ESG-score of the target firm has on bid premiums in Mergers & Acquisitions (M&A). While extensive research has been conducted on sustainable investing, no consensus regarding the influence of ESG performance on M&A activities has been reached. With a sample of 224 deals completed on the Northern European market between 2002-2022, various aspects of the ESG effect on deal premiums are evaluated through several regression models. The study could not conclude a significant relationship between ESG performance and deal premiums; however, a few other findings were obtained. Notably, when dividing the sample into subsamples of two different time periods, the more recent subsample (2015-2022) exhibited a negative relationship between all ESG aspects and the deal premium. This result suggests that acquirers tend to value ESG performance lower than the market in recent years, supporting the shareholder view that objectives to invest in other matters than shareholder wealth are valued negatively in later years contrary to previous years. In addition, no evidence that the ESG performance of the acquiring company had a significant impact on the willingness to pay more to acquire better ESG performance was found. Therefore, this study shows that, over time, ESG has not been a significant driver of acquisition premiums; however, it supports the notion that in recent years, companies do not value ESG as high as the market in mergers and acquisitions. (Less)
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author
Carlsson, Jesper LU and Tenggren, Charlie LU
supervisor
organization
course
NEKN02 20221
year
type
H1 - Master's Degree (One Year)
subject
keywords
ESG, M&A, Acquisition Premium, Shareholder Theory, Stakeholder Theory
language
English
id
9088324
date added to LUP
2022-10-10 09:33:46
date last changed
2022-10-10 09:33:46
@misc{9088324,
  abstract     = {{This paper sheds light on companies’ valuation of ESG performance by examining the potential impact that the ESG-score of the target firm has on bid premiums in Mergers & Acquisitions (M&A). While extensive research has been conducted on sustainable investing, no consensus regarding the influence of ESG performance on M&A activities has been reached. With a sample of 224 deals completed on the Northern European market between 2002-2022, various aspects of the ESG effect on deal premiums are evaluated through several regression models. The study could not conclude a significant relationship between ESG performance and deal premiums; however, a few other findings were obtained. Notably, when dividing the sample into subsamples of two different time periods, the more recent subsample (2015-2022) exhibited a negative relationship between all ESG aspects and the deal premium. This result suggests that acquirers tend to value ESG performance lower than the market in recent years, supporting the shareholder view that objectives to invest in other matters than shareholder wealth are valued negatively in later years contrary to previous years. In addition, no evidence that the ESG performance of the acquiring company had a significant impact on the willingness to pay more to acquire better ESG performance was found. Therefore, this study shows that, over time, ESG has not been a significant driver of acquisition premiums; however, it supports the notion that in recent years, companies do not value ESG as high as the market in mergers and acquisitions.}},
  author       = {{Carlsson, Jesper and Tenggren, Charlie}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Do Companies Value ESG? An investigation of the potential relationship between ESG performance and deal premiums paid in acquisitions.}},
  year         = {{2022}},
}