ESG Misalignment and Abnormal Returns in M&A Transactions -An event study of ESG distance and Announcement returns in Public-to-Public Deals

Abstract

This thesis examines whether ESG mismatch between acquirers and targets is associated with acquirer announcement returns in public-to-public M&A transactions. Using a market-model event study with an estimation window of [-160,-11] trading days, the analysis estimates acquirer cumulative abnormal returns across several announcement windows and uses CAR(-3,+3) as the main dependent variable. The valid CAR sample contains 792 transactions, while the main regression sample contains 496 transactions after requiring non-missing ESG variables, control variables, and fixed-effect indicators. The results do not show a statistically significant association between aggregate ESG distance and CAR(-3,+3). However, the ESG direction specification indicates that transactions in which the target has a higher ESG score than the acquirer are associated with more favorable announcement returns at low levels of ESG distance, while this association weakens as ESG distance increases. Pillar-specific results show a positive coefficient on social distance and a negative coefficient on governance distance in the main specification, whereas signed pillar-gap variables are generally insignificant, and environmental pillars are insignificant in all specifications. Overall, the findings suggest that ESG mismatch is not priced uniformly in M&A announcements. The direction and composition of ESG differences appear more informative than aggregate ESG distance alone.