The Cushion-Effect of ESG: Evidence from domestic and cross-border deals between 2008 and 2020

Sammanfattning: Purpose: This study investigates the short-term return around the announcement of domestic and cross-border M&A deals, completed by US firms between 2008 and 2020 and how they are affected by the acquiring firm's CSR performance. Methodology: An event study is conducted to establish the short-term return, using the market model to calculate the cumulative abnormal return (CAR) in relation to a market index. CAR is used as the dependent variable in our ordinary least squares (OLS) multivariate analysis where the ESG score of the acquirer is used as the explanatory variable. Theoretical perspectives: The analysis is conducted using previous empirical literature and theoretical perspectives based on information asymmetry and stakeholder theory. Empirical foundation: An increase in acquirer CSR performance decreases the announcement returns generated by the acquiring firm when analyzing all deals. However, it is found that the CSR performance of the acquirer has a negative impact on announcement returns when the acquirer generates a positive return, and a positive impact when generating a negative return. The results are consistent across domestic and cross-border deals. Conclusions: This study provides evidence that CSRs impact depends on whether the acquirer generates positive or negative returns. The risk-mitigating perspective of CSR performance in this study shed new light on explaining what creates and destroys value in M&A deals. Supported by theoretical perspectives, the acquirer's CSR performance is beneficial to minimize negative reactions to the deal from stakeholders. Additionally, our findings also suggest that this benefit is achieved at the expense of shareholder value maximization when the acquirer generates a positive return.