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Improvement in sustainability: Evidence from the mergers and acquisitions market

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  • Duy Thanh Nguyen
  • David Michayluk
  • Gerhard Van de Venter
  • Scott Walker

Abstract

One approach to improve a firm’s Environmental, Social, and Governance (ESG) rating is to acquire a target with a higher relative ESG rating. We explore changes in an acquirer’s ESG rating around merger and acquisition (M&A) announcements and provide empirical evidence of a positive relationship between the change in an acquirer’s ESG rating and the target’s relative ESG rating. Of the three components of an ESG rating, an acquirer’s environmental rating displays the largest increase, with social and governance ratings exhibiting a smaller but still significant post-merger increase. This relationship is weaker for cross-border deals or cross-industry deals. However, deals that are both cross-border and same-industry are associated with a larger increase in an acquirer’s ESG rating. In addition to improved ESG ratings, the acquisition of a firm with a superior ESG rating is also associated with higher bid premiums and improved post-merger financial performance which suggests that acquirers act in shareholders’ best interests. JEL Classification: G14, G34

Suggested Citation

  • Duy Thanh Nguyen & David Michayluk & Gerhard Van de Venter & Scott Walker, 2025. "Improvement in sustainability: Evidence from the mergers and acquisitions market," Australian Journal of Management, Australian School of Business, vol. 50(2), pages 484-523, May.
    • Handle: RePEc:sae:ausman:v:50:y:2025:i:2:p:484-523
    DOI: 10.1177/03128962231222824
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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