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Are deal premiums affected by ESG and financial distress?

Author

Listed:
  • Laus, Vittorio
  • Nirino, Niccolò
  • Shini, Matilda
  • Salvi, Antonio

Abstract

This study investigates the relation between environmental, social and governance (ESG) scores and M&A deal premiums by also introducing the moderating effect of the target's financial distress. The analysis is based on a final sample of 426 transactions worldwide from the beginning of 2014 to the end of 2023. We find a negative and significant relationship between ESG and trading premiums, mainly driven by the environmental and social pillars. Furthermore, we observe that the financial difficulty of the target positively moderates the negative relationship between ESG and trade premium. In terms of practical implications, the analysis shows that acquirers, should make use of appropriate ESG performance measurement tools, since they mainly consider environmental and social aspects when pricing the offer. On the other hand, the more the target companies are financially distressed, the more they should improve their environmental performance to increase their attractiveness and obtain a higher price in the deal.

Suggested Citation

  • Laus, Vittorio & Nirino, Niccolò & Shini, Matilda & Salvi, Antonio, 2025. "Are deal premiums affected by ESG and financial distress?," International Review of Economics & Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:reveco:v:102:y:2025:i:c:s1059056025005647
    DOI: 10.1016/j.iref.2025.104401
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    Keywords

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    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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