Material ESG Performance and Bid Premium in Merger and Acquisition Deals

This study examines the firm‐level and country‐level environmental, social, and governance (ESG) performance on bid premiums in cross‐border mergers and acquisitions (M&A) transactions. We document considerable variations in bid premiums. Higher carbon emissions are associated with higher bid premiums, suggesting that acquirers may perceive high‐emission firms as opportunities for restructuring or seek to exploit regulatory inefficiencies. In contrast, fossil fuel consumption (FFC) is linked to lower bid premiums, reflecting investor concerns over potential carbon transition risks. Strong institutional frameworks, particularly in regulatory quality and government effectiveness, are significant drivers of higher bid premiums, highlighting the importance of stable governance in M&A valuations. While cross‐border transactions generally reduce bid premiums due to transaction costs and information asymmetry, firms involved in cross‐border deals with block‐holder ownership tend to receive higher premiums, emphasising the strategic value of foreign firms with stable block‐holder ownership. ESG performance consistently enhances bid premiums, reinforcing the competitive advantage sustainability can provide in corporate transactions. Our findings contribute to the literature by offering a more comprehensive understanding of how institutional and macroeconomic factors, alongside firm‐level ESG performance, shape M&A pricing decisions, particularly in a globalised and volatile market context.