The ESG performance of Post-M&A target firms

This paper aims to improve our understanding of the drivers of the ESG performance of post-M&A target firms. Most of the existing literature is focused on acquirors’ sustainable performance after acquisition. Financial buyers, who have traditionally been associated with profit maximisation and a short-term horizon, seem to be adapting to changing clients demands, shifting towards an investment perspective which is closer to strategic buyers. In addition, investors reliance on debt capital after entering a new equity investment might provide a first signal of their subsequent efforts in implementing sustainable practices in the target firms. We adopt a counterfactual methodology, combining propensity score matching and analysing the determinants of the differences in performance between matched firms. Our results suggest that ESG performance in target firms is not different between financial and strategic investors, suggesting that the formers have been changing attitude towards long-term ESG related investments. In addition, equity investors that are less reliant on debt capital after an M&A operation are associated to significantly higher ESG performance. This suggests that different attitudes in the use of debt might be a signal of the future implementation of ESG practices. An understanding of the impact of acquirers’ nature and reliance on debt capital on the efforts in implementing ESG practices can improve managers’ ability to take informed decision when new equity investors are entering the company and support the design of efficient policies to support a quicker sustainable transition.