Circular economy and M&A: How target firms’ sustainable orientation shapes due diligence dynamics?

This article examines how the circular economy (CE) orientation of target firms influences the due diligence undertaken by acquirers in the mergers and acquisitions (M&A) market. Employing ordinary least squares (OLS) regressions on a unique sample of 3,159European M&A operations, the findings reveal that due diligence activities are significantly faster when acquirers deal with more CE-oriented target firms. This result is consistent with the view that innovative sustainability approaches, such as CE, are used by investors to alleviate information asymmetry concerns in the market for corporate control. Moreover, additional analysis highlights that the association between circular targets and expedited due diligence has strengthened over time, reflecting a recent shift in investors’ understanding of CE practices. Overall, the results underscore the growing importance of CE in the M&A market, offering valuable implications for managers, investors, and policymakers.