ESG and Deal Uncertainty: A Quantitative Study on Acquirer ESG Scores Effects on Arbitrage Spreads in M&A Transactions

Abstract

Uncertainty in M&A transactions is a central concern for investors and other stakeholders, often reflected in the arbitrage spread between the offer price and the target firm's stock price. Given the growing emphasis on ESG factors in investment decisions, this study explores whether acquirers' ESG score influences arbitrage spreads, thereby affecting the market perceptions of deal completion risk. The analysis is based on a quantitative methodology using a dataset comprising 408 M&A transactions from the European and North American markets during the period 2014-2024. Multivariate OLS regressions are employed, supplemented by a sensitivity analysis to test the effects of acquirers aggregated and disaggregated ESG scores on arbitrage spread. The results show that ESG scores do not have a statistically significant effect on arbitrage spreads. Instead, other firm-specific variables such as ROA, bid premium, and deal value are found to significantly influence the arbitrage spread. This study contributes to the literature by highlighting that while ESG may offer long-term strategic value, its relevance for shaping short-term deal risk appears limited.