Please, Help Me to Improve: The Role of Targets’ E, S & G Scores in M&A Operations

In the context of mergers and acquisitions (M&As) operations, the present research investigates whether and how the post-deal change in the acquirer’s ESG score is affected by the target’s ESG score. More specifically, detangling the ESG paradigm, this study aims to understand whether and how each dimension drives the change in the acquirers’ post-deal ESG performance. To this aim we perform a set of OLS regressions on a sample composed by 132 M&As operations involving European listed firms from 2015 to 2021. Our results reveal that by acquiring more sustainable targets, buyers improve their own ESG performance one year after the M&A transaction. Also, we show that such result is driven by better governance standards of the targets, rather than by their higher social and environmental orientations. Our research has relevant implications for both investors and policy makers whereas the former can assess better their ESG-related investment decisions, and the latter may encourage firms to disclose their ESG performance. Also, our additional analysis makes regulators aware of the potentially unethical behaviour of firms acting in M&As market.