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Finsif on jakanut stipendejä vastuullisesta sijoittamisesta kiinnostuneille opiskelijoille ja tutkijoille. Stipendien jaon tarkoituksena on ollut edistää vastuullisen sijoittamisen tutkimustyötä.
The integration of Environmental, Social, and Governance (ESG) factors into corporate strategy has become a defining feature of modern finance. Yet, when it comes mergers and acquisitions, where strategic rationale meets market scrutiny, boards, bankers, and investors are increasingly asking whether “responsible” companies are also better companies and, crucially in M&A, whether ESG alignment should command a premium. Prior research suggests that ESG can reduce risk, lower the cost of capital, and sometimes enhance firm valuation. In M&A however, the outcomes remain heterogeneous, and overpayment or integration failures are frequently seen to erode anticipated synergies.
My thesis investigates whether ESG ratings influence value creation in European M&A. Using 45 publicly disclosed acquisitions in the UK, Germany, and Nordic countries (2010–2023), I link acquirer and target ESG scores, measured by Thomson Reuters ESG combined score, to short-term market reactions and post-deal performance. The empirical design combines an event study of cumulative abnormal returns (CARs) around announcements with regressions on buy-and-hold abnormal returns (BHAR) and accounting outcomes (ROA, ROE). Robustness checks include instrumental-variable regressions and propensity-score matching to address endogeneity and selection bias.
Europe offers a unique setting to examine this relationship between ESG and value creation in M&A. Regulatory policy is evolving, with initiatives such as the Non-Financial Reporting Directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD) advancing ESG disclosure standards and enhancing the comparability of sustainability-related information. These developments have the potential to improve investor pricing of ESG traits. However, recent proposals, such as the European Commission’s 2025 simplification package aimed at easing reporting burdens for smaller firms, may influence the pace and scope of ESG adoption. Despite these regulatory advancements, the extent to which improved ESG transparency translates into measurable value creation in M&A transactions remains rather underexplored.
The analysis is guided by two central questions: whether announcement returns and post-acquisition outcomes are related to the target’s ESG performance, and whether ESG alignment between the acquirer and the target influences deal outcomes. Competing theories predict either a premium for high-ESG targets or investor preference for improvement potential when acquiring low-ESG firms. Similarly, alignment may facilitate integration or lead to ESG-driven overpayment.
The evidence suggests that investors prioritize improvement potential rather than static ESG alignment when pricing M&A transactions. Acquirers of low-ESG targets experience the highest and statistically significant cumulative abnormal returns (CARs) around announcement dates, indicating that markets reward the prospect of operational upgrades and risk mitigation. In contrast, acquisitions of high-ESG targets generate smaller and generally insignificant reactions, implying that pre-existing ESG leadership is not capitalized as a premium.
For acquirers, ESG strength does not translate into superior outcomes. High-ESG acquirers fail to earn an announcement premium and do not outperform on longer-term measures, including buy-and-hold abnormal returns (BHAR) and accounting metrics such as return on assets (ROA) and return on equity (ROE). In several specifications, coefficients are negative, suggesting that ESG orientation may coincide with conservative strategies or overinvestment tendencies rather than value creation.
Long-term performance is weak overall. The average BHAR over a 12-month horizon is −4.4%, reinforcing the view that deal fundamentals and integration quality dominate ESG labels in determining post-merger success. Robustness checks, including instrumental-variable regressions and propensity-score matching, confirm these patterns, indicating that the absence of a premium for ESG alignment is not driven by sample selection or omitted-variable bias.
My thesis contributes to the prior literature on (M&A) pricing and sustainable finance by clarifying that ESG is not a deterministic driver of value in complex corporate transactions. The findings suggest that investors prioritize credible opportunities for ESG improvement over static ESG leadership. For practitioners, ESG considerations should be embedded within broader operational, and financial strategies rather than used as a standalone justification for acquisition premiums. The thesis emphasizes the importance of articulating clear economic rationales when pursuing ESG-driven acquisitions. Without demonstrable synergies and value-creation mechanisms, ESG motives alone are unlikely to satisfy investors or withstand market scrutiny.
In conclusion, leading with economic value and leveraging ESG as a risk-mitigation and performance-enhancing tool can create competitive advantage. Conversely, treating ESG as a symbolic badge is unlike to convince markets.
Niko J. A. Rantanen
M.Sc. in Finance
University of Vaasa
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