Green M&A Deals: Do Acquirers Obtain Superior Returns?

Purpose: The paper aims to examine whether investors receive superior returns for participating in green mergers and acquisitions (M&As), or whether they pay a price for doing so. Design/methodology/approach: Using the event study research methodology, we assess whether acquirers are rewarded by the stock market in green versus non-green M&A deals, specifically in cross-border and horizontal transactions. The empirical study employs the pair-matching principle. The research is based on US market data on green and non-green acquirers listed in the US, sourced from Bloomberg, from 2010 to 2024. Findings: Our study results suggest that the stock market rewards the acquirer for making green M&As and provides positive cumulative abnormal returns during the short-term event window. However, as event window following the announcement of M&A transaction increases, the positive cumulative abnormal returns transition to negative ones. The results of the study suggest overpricing effects, which can be explained by the high takeover premiums when targeting sustainability-oriented deals. Research limitations/implications: The study implies mixed market attitudes towards sustainability-oriented M&A transactions. It supports the generally increasing interest in sustainable investments, urged by regulatory developments. However, the limited disclosure of public information on the environmental practices of companies involved in M&As makes it difficult to assess the level of adoption of sustainability practices and the possibility of greenwashing policies. Originality/value: This study addresses a research gap by examining green versus non-green M&As over the period from 2010 to 2024, characterized by a growing emphasis on sustainability issues within regulatory and political domains, as well as in the broader public discourse. Our results corroborate previous research indicating that investors often overstate the value of green M&As on the day of the announcement. Investors tend to assign a favourable value to cross-border environmentally oriented deals, also characterised by higher short-term volatility. Although not systematic, these overpricing effects suggest a general market optimism towards sustainability-oriented deals. The results support the notion that markets may overreact to the 'green' label of a transaction, and reinforce the argument that sustainability-oriented acquisitions involve significant information asymmetry.