Journal of Cleaner Production 413 (2023) 137039

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Unveiling the relationship between ownership structure and sustainability

performance: Evidence from Indian acquirers
Sheeba Kapil , Sarika Kumar *
Indian Institute of Foreign Trade, New Delhi, India

A R T I C L E I N F O A B S T R A C T

Handling Editor: Zhifu Mi Sustainability goals are a new trend among corporates as they play a significant role in attracting additional
investments for entities that follow sustainability practices. The relationship between a corporate board’s
Keywords: composition and the firm’s performance has been well studied in the literature. However, the relationship be­
Promoter tween a firm’s ownership structure and the firm’s sustainability performance remains to be empirically un­
Institutional
identified for firms participating in mergers and acquisitions (M&As) as M&As lead to major board
Ownership
restructurings. Therefore, we considered Indian listed M&A-participating firms for the period 2013–2022 and the
Foreign
Mergers results reveal a positive association between institutional and foreign ownership and firms’ sustainability per­
Acquisitions formance, whereas promoters’ ownership is negatively related. This study contributes to the literature on
corporate governance and M&A by demonstrating that a corporate board’s attributes affect the firm’s sustain­
ability performance.

1. Introduction transparency in a firm’s operations and leads to better disclosure prac­

Environmental, social, and governance (ESG) is all about firms’
business activities that affect the environment and society in maintain­
ing ‘business viability’ (Gungor and Dincel, 2018; Aras and Crowther,
2016). The process of business integration with other developed econ­
omies has propelled the significance of sustainability performance
(measured as an ESG index score) in developing economies. Sustain­
ability performance has drawn stakeholders’ attention to how firms
consider ESG reporting (Kapil and Kumar, 2021). This has pressured
firms in different sectors to seriously adopt sustainability reporting
(Khan et al., 2021). Tampakoudis et al. (2021) highlighted that ESG
disclosure practices also impacted synergy gains in mergers and acqui­
sitions (M&As). Researchers are upgrading the available literature on
sustainability by focusing on various firm-specific variables that affect
firms’ ESG disclosure practices. Alshbili et al. (2020) and Tampakoudis
et al. (2021) highlight that ‘the level of sustainability performance
disclosure is largely determined by the manner in which the organiza­
tion is governed’.
There is a vast literature on corporate governance (CG); one strand
investigates the relationship between a few CG attributes and firm
performance (Mishra and Kapil, 2017; Rani et al., 2014). Another strand
of the CG literature emphasises the CG mechanism that enhances
tices (Crifo et al., 2019); therefore, it highlights the relationship between
CG disclosure practice and M&A performance (Rani et al., 2013; Masulis
and Mobbs, 2014; Tampakoudis et al., 2018). Shamil et al. (2014) point
out the critical role of CG in firms’ adoption of ESG reporting. Tampa­
koudis et al. (2021) analysed a sample of European countries and
highlighted the positive association between ESG scores and the M&A
deal premium. Target firms with higher ESG scores benefit in the deal
process. De Andres and Vallelado (2008) stressed that CG attributes
significantly influenced a firm’s socially responsible behaviour in an
M&A. A few studies consider the relationship between board composi­
tion and ESG. considered a sample from the Asia pacific region.
M&A activities lead to a major restructuring of a corporate board and
significantly affect the decision-making process (Barros et al., 2022). An
M&A directly impacts a firm’s operational nature, which significantly
alters the firm’s relationship with its stakeholders (who seek to maxi­
mise their investments) (Naciti, 2019). The concerns about a firm’s ESG
scores are not confined to stakeholders; acquirers also focus on their
target’s ESG scores and socially responsible behaviour (Barros et al.,
2022Amran et al. (2014)). Caiazza et al. (2021) highlighted the concerns
of acquirers, who must consider potential risks while processing an M&A
transaction because the target firm’s ESG score may reflect its financial
position and reputation (Barros et al., 2022). Moreover, because CG is

* Corresponding author.
E-mail addresses: sheebakapil@iift.edu (S. Kapil), Sarika_phd18@iift.edu, k.sarika.87@gmail.com (S. Kumar).

https://doi.org/10.1016/j.jclepro.2023.137039
Received 18 September 2022; Received in revised form 13 March 2023; Accepted 30 March 2023
Available online 26 April 2023
0959-6526/© 2023 Published by Elsevier Ltd.
S. Kapil and S. Kumar
responsible for crafting and executing a firm’s strategies for sustain­
ability and protecting its shareholders’ interests, the board’s composi­
tion and commitment are important to inculcate a culture of
sustainability within the firm. However, sustainability reporting re­
mains in its initial formative stage in India (Kapil and Kumar, 2021).
Based on the available literature, the question arises: Do the board
composition and ownership structure of Indian acquirers have any
impact on their ESG reporting and profitability?
The author is motivated by several reasons in choosing India for the
study. India is among the fastest growing economies globally and has
taken several significant steps to promote companies’ corporate sus­
tainability and sustainability reporting. In 2011, the Ministry of
Corporate Affairs, Government of India (MCA, GOI) introduced national
voluntary guidelines (NVGs) for firms to adopt corporate social re­
sponsibility (CSR). Thereafter, the Securities Exchange Board of India
(SEBI) made the Business Responsibility Report (BRR) mandatory for the
top 100 Indian NSE or BSE listed firms. India is among the first countries
to make the CSR rule mandatory for firms in section 135 of the Com­
panies Company act, 2013. De Andres and Vallelado (2008) highlighted
that such initiatives had significantly and positively affected
sustainability-disclosure activities in India.
Theoretically, the study draws on the stakeholder, legitimacy, and
agency theories, with the following objectives: first, to analyse the in­
fluence of some CG attributes (board size, board independence, and
board meetings) and the composition of ownership structure on
acquiring firms’ ESG score. Second, this study can contribute to
sustainability-performance disclosure practices. Furthermore, this study
elaborates on the development of the link between CG attributes and
ESG. Third, the study aims to highlight the significant impact of various
ownership structures on the ESG scores of acquiring firms that are
involved in M&A activities to realise synergy gains.
This study is the first to contribute to the literature by simultaneously
and empirically investigating three types of ownership variables and
other CG attributes in relation to firms’ performance measures and
sustainability performance in the context of a developing country such
as India, which is also the second-largest foreign-funded recipient on the
list of developing nations. The remainder of the paper is organised as
follows: The next section presents the theoretical underpinnings of
sustainable performance, ownership structure, and other CG attributes
considered for the study and develops the required hypotheses. In the
third section, the author presents the data and methodology employed.
The fourth section discusses the results and findings, followed by the last
section, which concludes with implications.
2. Theoretical unpinning and hypothesis development
The goals for the next few decades are to boost the business world
and simultaneously emphasise sustainability. Some studies (Naciti,
2019; Kapil and Kumar, 2021) have pointed out that the pursuit of
sustainable development and consideration of ESG dimensions will
certainly benefit all existing business sectors of the economy by creating
new opportunities and strengthening the relationships with firms’
stakeholders. Barros et al. (2022) observed that M&A activities posi­
tively impacted the ESG scores of combined entities, and that stake­
holders rewarded firms through additional investment channels and
built the mutual-trust factor and cooperation by decreasing the explicit
and implicit expenses that motivated managers to adopt long-term
perspectives of vision. Researchers (Rani et al., 2014; Gungor and Din­
cel, 2018; Gungor and Dincel, 2018) have investigated various aspects of
CG and CSR; however, few studies have focused on the association be­
tween ownership-structure composition and ESG. Some studies (Hussain
et al., 2018; Naciti, 2019) have examined the association between CG
and sustainability performance and postulated positive, negative, and
neutral results. Amran et al. (2014) and Aksoy et al. (2020) highlighted
that, based on the agency-theory perspective, the association between
CG and ESG indicated how a firm’s owners influenced the decision
2
Journal of Cleaner Production 413 (2023) 137039
making related to deal activities and appointing board members (Fama
and Jensen, 1983). Jo and Harjoto (2012) maintained that the CG
mechanism was responsible for aligning the incentives provided to
managers with those provided to stakeholders, and that this would also
resolve agency issues.
Gungor and Dincel (2018) found that various ownership character­
istics had significant and different effects on ESG scores. Ayuso and
Argandoña (2009) and Spitzeck (2009) provide evidence that a firm’s
ESG scores are not only affected by the board composition but also by
the firm’s commitment to sustainability performance. Furthermore, De
Villiers et al. (2011) considered a sample of Unites States (US) M&A
firms and discovered a significant association between board charac­
teristics (board independence and size and gender diversity) and sus­
tainability performance. Gungor and Dincel (2018) found a link between
sustainability and firm performance for Turkey’s M&A firms. They noted
that firms with strong ESG scores better utilised their resources and
showed strong financial performance, whereas Akben-Selcuk (2019)
examined the positive impact of sustainability performance by consid­
ering the moderating role of ownership concentration for a sample of
European countries. The author also observed that various levels of
ownership-structure concentrations impacted the ESG scores differently.
In lieu of this, Kumar et al. (2021) considered a sample of Indian BSE
listed firms and examined the impact of CG on ESG scores. They high­
lighted the positive and significant impact of foreign investors (FIIs) on
the ESG scores; however, Naciti (2019) found that FIIs negatively
impacted firms’ ESG scores.
The literature documents that engaging in sustainability perfor­
mance benefits a firm both internally and externally and improves its
reputation, and that it strengthens the firm’s relationship with its
stakeholders (Naciti, 2019). Most of these benefits are related to the
stakeholder theory. However, it is important to consider sustainability
screening as it affects a firm’ decision-making processes and profit­
ability. Studies have investigated fewer dimensions of CG while indi­
cating their impact on ESG scores. This study elaborates the
relationships between CG variables and different ownership structures
and Indian acquiring firms’ ESG scores.
2.1. Ownership structure
Promoter ownership: ‘Promoter refers to the individual or group of
individuals responsible for incorporation and organization of the firm’
(Mishra and Kapil, 2017). From the perspective of legitimacy theory,
promoters are a source of sustainability information for a firm’s public
accountability and legitimacy. De Andres and Vallelado (2008), Naciti
(2019), and Barros et al. (2022) highlighted a negative impact of pro­
moter ownership on a firm’s sustainability performance and a positive
one on its performance measures (Mishra and Kapil, 2017) based on the
level of ownership concentration within the firm. During M&A activ­
ities, a higher concentration of promoter ownership will ameliorate
agency conflicts, and ownership structure will positively impact
post-deal performance in the long run (Bhaumik and Selarka, 2012).
This is because promoters are responsible for managing numerous in­
centives associated with monitoring a firm’s mangers and involve
themselves in the firm’s strategic and managerial decisions (Tampa­
koudis et al., 2018). However, firm managers are not interested in
investing in the firms’ sustainability performance as the benefits asso­
ciated with such investments are realised in the long run.
H1. There is negative relationship between promoter ownership and
the sustainability performance of firms participating in M&A activities.
H1a. There is positive relationship between promoter ownership and
the performance of firms participating in M&A activities.
2.2. Foreign ownership (FIIs)
‘India is among the second largest foreign-fund recipient in emerging
S. Kapil and S. Kumar
markets after China’ Saini and Singhania (2018). The presence of FIIs is
associated with a firm’s better performance (Mishra and Kapil, 2017).
Saini and Singhania (2018) found that FIIs were responsible for gener­
ating a firm’s additional profits rather than concerned about its sus­
tainability performance and therefore negatively impacted the firm’s
profitability. Aksoy et al. (2020) found that FIIs forced firms to be more
aligned with sustainability performance and activities and highlighted a
positive association between FIIs and ESG. Khan et al. (2021), based on
resource dependency theory, found that heterogeneity in the capabilities
of various owners with diverse corporate experiences would have
different impacts on a firm’s performance measures. Firms with in­
vestors in various global markets will have more diverse groups of
stakeholders, which will lead to higher profits. Therefore, such firms will
deal with more diverse reactions that drive them to attain higher prof­
itability and to perform better in terms of sustainability, thus protecting
their reputations (Carroll and Brown, 2018). However, in the long run,
the presence of more FIIs will negatively impact ESG performance
(Kumar et al., 2021; Fatemi et al., 2017; Aouadi and Marsat, 2018).
Given the various results in the literature, there remains a dearth of
studies on the said relationship in the context of M&As.
H2a. There is negative association between FIIs and the corporate
sustainability performance of firms participating in M&A activities.
H2b. There is a positive relationship between FIIs and the performance
of firms participating in M&A activities.
2.3. Institutional ownership
Yadav (2020) found that institutional-ownership shareholders were
among the powerful groups that impacted a firm’s decision making.
Institutional investors closely observe and analyse a firm’s management
(Kapil and Kumar, 2021). In contrast, Gungor and Dincel (2018) found
that institutional investors, as long-term investors, could exploit their
stake in a firm and thus negatively impact its profitability. Alda (2019)
found that sustainability performance was positively associated with
institutional ownership, and that institutional investors preferred to
invest in firms that were highly committed to ESG (Jo and Harjoto,
2012). Tampakoudis et al. (2018) examined a sample of firms that
invested in accelerating sustainability-performance numbers and found
that they were successful in maintaining high proportions of institu­
tional investors during their M&A activities.
H3a. There is a positive association between institutional ownership
and the corporate sustainability performance of firms participating in
M&A activities.
H3b. There is positive association between institutional ownership
and the performance of firms participating in M&A activities.
2.4. Board size
Mishra and Kapil (2017) and De Andres and Vallelado (2008)
maintained that the number of board directors was among the important
aspects of the CG mechanism and was responsible for ensuring an ethical
and responsible business code of conduct. A smaller board size is
considered as efficient in mitigating the agency problems between the
shareholders and a firm’s managers (Mishra and Kapil, 2017; Shamil
et al., 2014; De Andres and Vallelado, 2008). However, this has been
countered by some researchers (Renneboog and Vansteenkiste, 2019)
who have found that a smaller board size is easily influenced and is
likely to take disastrous deal decisions. Jo and Harjoto (2012) noted that
a larger board size led to negative firm performance and also increased
the agency cost and delays in the decision making, resulting in weaker
control over the management.
H4a. There is negative relationship between board size and the sus­
tainability performance of firms participating in M&A activities.
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Journal of Cleaner Production 413 (2023) 137039
H4b. There is negative relationship between board size and the per­
formance of firms participating in M&A activities.
2.5. Board independence
Various researchers have incorporated CG attributes and suggest that
a higher proportion of independent directors on a corporate board im­
proves the CG mechanism and board effectiveness. According to agency
theory, independent directors help in monitoring managers’ social
behaviour and mitigate agency problems (Shamil et al., 2014; Mishra
and Kapil, 2017; Al Farooque and Ahulu, 2017). Independent directors
are in a non-financial position, which allows them to advocate stake­
holders’ social needs, as suggested by stakeholder theory (Naciti, 2019).
The literature contains mixed results regarding the relationship between
board independence and firm performance. Liu et al. (2017) found that
the presence of more independent directors improved a firm’s man­
agement functioning and its focus on sustainability performance.
Empirical studies on the influence of board independence on sustain­
ability performance present inconclusive results. Chau and Gray (2010)
and Mishra and Kapil (2017) provided evidence of a positive association
between board independence and sustainability performance.
H5a. There is a positive and significant relationship between the
proportion of independent directors and the sustainability performance
of firms participating in M&A activities.
H5b. H5a: There is a positive and significant relationship between the
proportion of independent directors and the performance of firms
participating in M&A activities.
2.6. Board meetings
The number of board meetings conducted is among the important
indicators of a board’s involvement and activeness in the managerial
monitoring process. The more frequent the meetings are conducted, the
more involvement of the board members is ensured (Liu et al., 2017). Jo
and Harjoto (2012) and Mishra and Kapil (2017) found that a higher
frequency of board meetings during the time of deal processing (Ren­
neboog and Vansteenkiste, 2019; Tampakoudis et al., 2018) ensured
better coordination and communication, reduced the agency cost, and
ensured deal success. However, there is a dearth of study on the impact
of board meetings on a firm’s sustainability performance, apart from a
few studies (Hermalin, 2005; Naciti, 2019; Alshbili et al., 2020) that
found a positive impact of the number of board meetings on firms’
sustainability performance. Consistent with the theoretical argument,
this study also anticipates a positive influence of the number of board
meetings on the sustainability performance of firms participating in
M&A activities.
H6a. There is a positive and significant relationship between the
number of board meetings and the sustainability performance of firms
participating in M&A activities.
H6b. There is a positive and significant relationship between the
number of board meetings and the performance of firms participating in
M&A activities.
3. Methodology and findings
3.1. Data
Data on CG ownership variables, the number of board members,
number of independent directors, and number of board meetings
attended by directors (variables mentioned in Table 1) were collected
from Prowess IQ, maintained by CMIE, while firm-performance mea­
sures were obtained from EMIS for the NSE listed non-financial firms
participating in M&As for 10 years, i.e. 2013-2022. The firms’ ESG
scores were collected from the Bloomberg terminal and companies’
S. Kapil and S. Kumar Journal of Cleaner Production 413 (2023) 137039

Table 1 with the issues of autocorrelation, heteroskedasticity, heterogeneity,

Variable’s definitions. and endogeneity, we tested our above hypotheses based on a dynamic
Variables Abbreviations Definitions panel-data model, which is used ‘when the dependent variables are ex­
pected to exhibit a sufficiently large degree of persistence’. Based on the
Tobin’s Q TBQ Market value of equity + book value
of long term and short-term debt literature review, in our study, firm-performance measures exhibit
divided by total assets. persistence that is captured by the lagged firm-performance term. A
Return on assets ROA PBDITA/total assets. dynamic model is more robust, insightful, and successful in capturing
ESG scores ESG The score varies from 0(worst) − 100 the persistence effect. Therefore, we employed a dynamic
(excellent) are evaluated considering
almost 26 elements related to
panel-estimation technique, that is, the difference generalised method of
environment, social and governance moments (diff GMM) and system GMM (Sys GMM).
parameters.
Promoter ownership Pro_own Percentage of total equity ownership Yi,t = α + β Yi,t− 1 + γ Xi,t + vit
of promoter group in the firm.
Institutional Ownership Inst_own Percentage of total equity ownership In the above equations, Yi,t represents the dependent variable, that is,
of institutional investors in the firm. firm performance as measured by Tobin’s Q and ROA. Xi,t represents the
Foreign Institutional FII_own Percentage of total equity ownership independent explanatory variables, that is, both gender-diversity and
investors/foreign of foreign institutional investors in
control-variable sets. Xi , Yi , and vi are the time-demeaned values of Xi,t,
ownership the firm.
Board Size Board_size Number of members in board. Yi,t, and vi,t, respectively. Yi,t− 1 represents the lagged performance term.
Board meeting Meetings_board Annual Average number of In our study, the explanatory variables exhibit endogeneity issues,
meetings. which is because of the CG variables of board size and independent
Board independence Ind_board Number of independent directors on
board directors that influence a firm’s past performance (Arora and
board.
Firm size Fsize The logarithm of total assets.
Sharma, 2016; Mishra and Kapil, 2017; Sheikh et al., 2018). Therefore,
Firm leverage LEV The ratio of debt to total assets. to overcome this problem of endogeneity, a dynamic panel model is
preferred over a fixed-effect model estimator (Arora and Sharma, 2016);
the following model is used in our study:
individual sustainability-disclosure documents. The following M&A
deals were considered: 1) completed deals, (2) where the deal value Yt = α0 + β0Yt-1+ β1pro_owni, + β2Inst_owni, + β3FII_owni,t +
exceeded US$1 million, and (3) acquisitions in which the acquiring firm β4board_sizei,t + β5 Ind_boardi,t
acquired a more than 15% stake. The value of the initial stake was
+ β6meeting_boardi, + β5 Fsizei, + β7LEVi,t + εi,t
chosen as 15% owing to the provisions of the Old Takeover Regulations
of SEBI. In the above equation, Yt represents the firm-performance measures,
Based on the above definition of M&A, a total of 564 firms were that is, ROA and Tobin’s Q. On the right-hand side, we have the CG
included in the initial sample. Based on available ESG scores, the final variables for firm i at period t. Fsize and LEV are the control variables.
sample of firms considered for the study was reduced to 325. On testing the results of the dynamic panel-data analysis, they were
consistent with those obtained using the pooled OLS and fixed-effects
models.
3.2. Methodology

The panel data comprise both cross-sectional and time-series di­
mensions. The cross-sectional units were surveyed over time; therefore,
the data employed were simultaneously pooled over time and space.
Furthermore, there were endogeneity and unobserved fixed effects
associated with each firm considered. To overcome this issue, pooled
ordinary least squares (OLS) estimation was employed; however, when
there were unobserved effects that were correlated with the independent
variable employed for the study, we obtained biased estimates. Previous
studies that analyse the correlation between CG and firm-performance
measures have suggested the use of fixed-effects estimators (De Andres
and Vallelado, 2008). A fixed-effect model, as discussed by Gungor and
Dincel (2018) and Wintoki et al. (2012), is considered to be a better
model than a pooled OLS model as it incorporates the unobserved het­
erogeneity across different individual firms. For estimating the
fixed-effect model, we employed the within-transformation that elimi­
nates the unobserved heterogeneity ‘by using
time-demeaned-dependent and explanatory variables.
( ) ( )
Yi,t − Yi = β Xi,t − Xi + vi,t − vi
3.3. Empirical result and discussion
As previously mentioned, data on 325 NSE listed acquiring firms
were created; their descriptive statistics are reported below in Table 2.
Table 2 shows the firms’ performance variables, ROA, Tobin’s Q, and
sustainability performance. The author checked for the presence of
outliers and other extreme values by employing Cooks distance and
leverage values, based on which outliers were removed when identified.
The ESG scores show that the firms’ ESG disclosure practice has been
ignored relative to their CG disclosure practices, as CG disclosures are
mandatory according to the Company’s Act (2013). Table 3 shows the
industry-level distribution of acquiring Indian firms; disclosure of their
sustainability-performance evaluations is prioritised. Among the firms,
chemical industries show the utmost priority in revealing their ESG
Table 2
The table reports the descriptive statistics for all the considered variables.
Variables Mean Median S.Da Min Max

TBQ 1.55 1.25 0.98 0.085 8.06

However, Hermalin (2005) found that some CG variables were ROA 3.34 2.54 10.98 − 3.86 141.00
endogenously determined, for example, board of directors; therefore, ESG 11.50 12.85 10.45 6.59 80.83
the fixed effects become inconsistent when the exogeneity condition Pro_own 11.32 10.13 10.72 0.02 74.47
fails. Wintoki et al. (2012) also found that the conditions for fixed-effect Inst_own 9.63 10.11 9.68 0.01 76.56
FII_own 10.78 9.14 10.70 0.01 75.54
estimates were biased in some cases of board composition, as they Ind_board 0.05 0 0.29 0 4
sometimes fail to analyse the effect of the present board structure on Board_size 11.58 9 2.65 7 25
firm performance; furthermore, Hermalin (2005) concluded that Meetings_board 6.99 6 3.45 0 30
changes in board structure took considerable time in affecting a firm’s Fsize 27.34 20.95 3.23 22.46 25.75
LEV 3.36 2.56 6.57 2.12 156.63
performance; therefore, a fixed-effect estimator fails.
Furthermore, based on Arellano and Bond’s (1991) research, to deal a
S.D means Standard Deviation.

4
S. Kapil and S. Kumar Journal of Cleaner Production 413 (2023) 137039

Table 3 period while estimating the model’ (Arellano and Bond, 1991). How­
Industry wise distribution of M&A participating firms which reveals their ESG scores. ever, Blundell and Bond (1998) found that the lagged levels of the
Industry Number of firms with ESG scores disclosure dependent variables were often among the poor instruments for the first
differenced variables and could not be trusted; therefore, they advised
Aerospace and defense 20
Building products 28 the use of Sys GMM as it is more robust than the diff GMM. Referring to
Chemicals 132 the results from both the diff GMM (see Table 5) and Sys GMM (see
Construction materials 8 Table 6), the results from the Sys GMM are more interesting, where the
Electric utilities 3 dependent variables, that is, the firm-performance variables and ESG,
Electrical equipment 8
Electronic equipment and instruments 60
are more significant than those from the diff GMM estimator. The FIIs
Food products 10 holding positively impacts the firms’ profitability and performance
Gas Utilities 17 measures (ROA and Tobin’s Q); these results are consistent with previ­
Renewable power sources 7 ous findings (Mishra and Kapil, 2017; Mishra and Kapil, 2017; Bhagat
Oil, gas fuels 15
et al., 2008), whereas the FIIs are negatively related to the ESG, which is
Pharmaceuticals 10
Diversified industry 7 consistent with Saini and Singhania (2018), Naciti’s (2019), and Mishra
Total 325 and Kapil (2017) results. This demonstrates the lenient and ignored
institutional framework in emerging economies such as India.
India is considered as a pollution-haven economy by FIIs and
scores, the reason being ‘the government’s mandatory aspects towards therefore ends up bearing less cost and spending less on environmental
the disclosure of reports related to firm’s waste management and carbon upgrades (Barros et al., 2022). The results show that during the short
emission reports’ (Saini and Singhania, 2018). The average ESG score is run, the relationship between FIIs and ESG is negative and less signifi­
11.50 (lower than the maximum value of 100) and the highest score is cant; however, the relationship is significant and negative in the long
noted as 80.83. Saini and Singhania (2018) found that very few com­ run, which implies that FIIs value financial profits and are not concerned
panies voluntarily disclosed their environment-related information in about the relevant aspects of a firm’s sustainability performance.
their annual reports, which preserves their credibility with external Therefore, M&As can be unsuccessful in the long run when such FIIs
shareholders. promote less sustainability performance and hence damage firms’ im­
Table 4 shows that the correlations among the dependent and in­ ages. However, such scenarios are common in developing economies
dependent variables are free of multicollinearity. The variance infla­ with lenient institutional frameworks. This is because developing
tionary factor (VIF) is also mentioned in Table 4, where values must be economies aim to attract foreign investments, while the entire procedure
less than 10 to indicate a lack of multicollinearity among the variables; is initiated based on the home country’s guidelines and neglects the host
moreover, there are no standard errors in the model estimation (Fidell country’s requirements and necessities. Board independence and board
and Tabachnick, 2003; Hermalin, 2005). meetings positively and significantly affect firm performance and the
Tables 5 and 6 show the dynamic panel-data analysis (suggested by sustainability-performance measure, whereas board size negatively
Arellano and Bond, 1991), which considers the issues of endogeneity impacts them. The results reveal that firm’s performance after an M&A
among the variables. The empirical results show that the relationship significantly improves in the long run. The results are consistent with
between the different ownership structures and the firm-performance Tampakoudis et al.’s (2018) and Renneboog and Vansteenkiste (2019)
measures (Tobin’s Q and ROA) improves in the long term (5 years findings.
after the deal conducted), whereas those for the short term are not as
impressive (that is, in the 2 years and 3 years after the deal conducted).
4. Conclusion
These results are consistent with Tampakoudis et al.’s (2018) and Ren­
neboog and Vansteenkiste (2019) findings. The static models lack in
Sustainability is a critical part of the strategic vision that drives so­
significance and therefore remain incomplete models, which motivates
cially and environmentally conscious firms. Sustainability performance
the use of dynamic-model analysis. In such situations, there is no such
is thus a varied, intricate, and complicated field. Therefore, a firm’s
need to introduce any lag of the control variables (Arora and Sharma,
sustainability performance has achieved relevance among researchers.
2016; Saini and Singhania, 2018).
This study provides insights into the relationship between CG attributes
Dynamic panel-data analysis is advantageous as it considers the issue
and ESG for M&A Indian acquirers. We investigated 325 acquirers for
of endogeneity in the model by capturing autoregressive terms. The diff
the period 2013–2022 using a large panel-data set across various sectors.
GMM estimator is also known as the Arellano and Bond estimator, which
The study focused on CG attributes, the composition of ownership
‘uses the lagged levels of the dependent variables, one for each time
structure, and other firm specific characteristics, including financial-

Table 4
Correlation matrix, using the observations 1:1–325:5, 5% critical value (two-tailed) = 0.036 for n = 1625.
TBQ ROA ESG Pro_own Inst_own FII_own Ind_board Board_size Meetings_board Fsize LEV

TBQ 1
ROA 0.64* 1
ESG 0.37 0.65** 1
Pro_own 0.01* 0.09 − 0.06* 1
Inst_own − 0.07* 053** 0.04 − 0.03 1
FII_own − 0.09** − 0.05* 0.03*** 0.13 − 0.07* 1
Ind_board − 0.37 0.91* − 0.13** 0.03* − 0.02 0.52 1
Board_size − 0.03** − 0.04** − 0.16* − 0.05** 0.08** 0.06* − 0.14** 1
Meetings_board 0.45* 0.34* 0.45** 0.23* 0.34* 0.21 0.34 − 0.42* 1
Fsize 0.34** 0.22 0.53 0.25 0.45 0.21** 0.13 0.38 0.54** 1
LEV 0.91* 0.43 0.34* 0.45 0.11* 0.12 0.23** 0.23* 0.43 0.23* 1
VIF 1.10 1.23 1.75 1.65 1.17 1.27 2.12 2.23 1.13 5.34 4.33*

Note: (a) *Correlation is significant at *p < 0.1; **p < 0.05; ***p < 0.01. (b) Minimum possible value of VIF can be 1.0 and values greater than 10.0 may indicate a
problem of collinearity.
Source: Author’s calculation

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S. Kapil and S. Kumar Journal of Cleaner Production 413 (2023) 137039

Table 5
Results using dynamic panel analysis of firm performance measures and sustainability performance (ESG) using Difference GMM.
Variables Results with 1-year pre deal Results with 2-years post deal Results with 5-year post deal

TBQ (Model ROA (Model ESG (Model TBQ (Model ROA (Model ESG (Model TBQ (Model ROA (Model ESG (Model
1) 2) 3) 1) 2) 3) 1) 2) 3)

Lagged 1.25(1.13) 0.28(1.12) 0.23*(0.05) 0.34*(0.07) 0.42*(0.06) 0.67*(0.06) 0.57***(0.00) 0.87**(0.03) 0.98**(0.05)
performance
TBQ 1.03(0.31) 0.11(1.01) 0.11(1.21) 0.24*** 0.43**(0.04) 0.54*(0.07) 1.01***(0.00) 0.57***(0.00) 1.64**(0.05)
(0.00)
ROA 0.48*(0.06) 0.32*(0.07) 1.21*(0.08) 0.55**(0.04) 0.53**(0.03) 1.22**(0.02) 0.65***(0.00) 0.87***(0.01) 1.45**(0.03)
ESG 0.14*(0.06) 0.21*(0.06) 0.98*(0.08) 0.23*(0.07) 0.36**(0.03) 1.09*(0.08) 0.82**(0.06) 0.98**(0.03) 1.09**(0.03)
Pro_own 1.99(1.21) 1.25(1.27) − 0.87(1.08) 0.25*(0.08) 0.31**(0.03) − 1.01*(0.06) 0.09**(0.03) 0.45**(0.03) − 0.97**
(0.02)
Inst_own 1.03(1.00) 0.19(1.12) 0.23*(0.09) 0.24**(0.02) 0.46*(0.09) 0.21*(0.07) 1.81**(0.09) 0.57**(0.07) 1.24**(0.02)
FII_own 0.45**(0.04) 0.32**(0.03) 2.32(1.21) 0.50**(0.04) 0.54**(0.03) 1.24*(0.04) 0.65**(0.08) 0.87**(0.01) − 2.21**(0.8)
Ind_board 0.13*(0.08) 0.21*(0.09) 1.10(1.01) 0.24*(0.08) 0.38*(0.08) 0.98*(0.07) 0.81**(0.04) 0.94**(0.03) 1.02**(0.02)
Board_size − 0.01(0.96) − 0.08(0.38) − 0.87(0.98) − 0.09*(0.07) − 1.03*(0.08) − 1.00*(0.09) − 0.53(1.56) − 0.03*(0.09) − 0.09**
(0.03)
Meetings_board − 0.33*(0.07) 0.70*(0.03) 0.88*(0.09) 1.75**(0.04) 1.07*(0.09) 0.98*(0.08) 0.93*(0.07) 0.36*(0.04) 1.56*(0.08)
Fsize 1.00*(0.09) 0.03*(0.08) 1.03*(0.09) 0.14*(0.09) 1.02*(0.09) 1.08*(0.09) 0.06(0.78) 0.26**(0.04) 1.66*(0.09)
LEV 44.92(1.00) 35.34*(0.09) 37.62*(0.07) 46.71** 85.01*(0.09) 23.65*(0.07) 10.72*** 65.76** 34.88**
(0.04) (0.00) (0.09) (0.04)
Constant 1.23(0.82) 2.14*(0.09) 2.41**(0.03) 1.67**(0.03) 2.87**(0.04) 2.67**(0.03) 1.23**(0.02) 2.10**(0.02) 1.89*(0.09)
Observations 1625 1625 1625 1625 1622 1623 1625 1621 1620

***p < 0.01, **p < 0.05, *p < 0.1 (two-tailed test).

Table 6
Results using dynamic panel analysis of firm performance measures and sustainability performance (ESG) using System GMM.
Variables Results with 1-year pre deal Results with 2-years post deal Results with 5-year post deal

TBQ (Model ROA (Model ESG (Model TBQ (Model ROA (Model ESG (Model TBQ (Model ROA (Model ESG (Model 3)
1) 2) 3) 1) 2) 3) 1) 2)

Lagged 1.67(1.23) 0.49*(0.09) 0.89*(0.09) 0.56*(0.09) 0.53*(0.08) 0.72*(0.07) 1.77***(0.00) 1.84**(0.03) 1.65**(0.04)
performance
TBQ 1.22(0.17) 0.18(1.00) 0.31(1.46) 0.31**(0.03) 0.54**(0.04) 0.87*(0.09) 2.01***(0.00) 0.66*** 1.64**(0.01)
(0.00)
ROA 0.84*(0.09) 0.72*(0.06) 1.21*(0.08) 1.45**(0.02) 0.39**(0.03) 1.67**(0.03) 1.05**(0.03) 0.77*** 1.55**(0.04)
(0.00)
ESG 0.24*(0.07) 0.42*(0.08) 0.88*(0.07) 043*(0.07) 0.56**(0.02) 1.23*(0.08) 0.76**(0.02) 1.48**(0.04) 1.33**(0.02)
Pro_own 0.98(1.43) 1.31(1.56) − 1.81(1.08) 0.88*(0.09) 1.51**(0.04) − 0.09* 1.06**(0.02) 0.85**(0.03) − 1.08***
(0.07) (0.00)
Inst_own 1.24(1.00) 0.43(1.23) 0.43*(0.09) 0.24**(0.09) 1.21*(0.03) 0.34*(0.06) 1.92**(0.08) 0.43**(0.07) 1.28***(0.00)
FII_own 0.65**(0.03) 0.43*(0.09) 1.12(0.21) 0.51**(0.03) 0.87**(0.02) 1.35**(0.08) 0.87***(0.00) 0.77*** − 2.67**
(0.00) (0.03)
Ind_board 1.23*(0.07) 0.42*(0.08) 1.00(0.99) 0.51*(0.07) 0.56*(0.06) 0.81*(0.08) 0.72**(0.03) 0.89**(0.02) 1.42**(0.01)
Board_size − 0.65(0.76) − 0.23(0.45) − 0.98(0.87) − 0.19*(0.06) − 1.45*(0.06) − 1.40* − 0.98*(0.09) − 1.23*(0.09) − 0.19**
(0.08) (0.02)
Meetings_board − 0.45*(0.06) 0.75*(0.04) 0.88*(0.08) 1.87**(0.03) 1.23**(0.02) 0.76*(0.09) 1.04**(0.03) 0.48*(0.07) 1.76**(0.03)
Fsize 1.02*(0.08) 0.13*(0.09) 0.99*(0.08) 0.23*(0.07) 1.20*(0.08) 1.11*(0.08) 0.16*(0.07) 0.32**(0.02) 1.77**(0.03)
LEV 49.11(1.09) 38.21*(0.08) 36.22*(0.08) 41.54** 89.11*(0.03) 12.23*(0.09) 13.66*** 52.55** 39.65**(0.03)
(0.03) (0.00) (0.08)
Constant 1.33*(0.08) 2.32*(0.08) 2.56**(0.03) 1.78**(0.04) 2.96**(0.04) 2.66**(0.02) 1.45**(0.04) 2.09**(0.02) 1.93*(0.09)
Observations 1625 1625 1625 1625 1622 1623 1625 1621 1620

***p < 0.01, **p < 0.05, *p < 0.1 (two-tailed test).

performance measures and leverage.
Using a GMM dynamic panel-data methodology, we revealed that of
the ownership-structure compositions, FIIs and institutional investors
are positively associated with the ESG scores in the short- (+1 year) and
medium-term (+2 years) periods, which tends to support the arguments
advanced by the stakeholder theory. However, ESG becomes negative in
the long term (+5 years) and institutional investors’ ownership remains
positive even in the long run. These results validate Naciti’s (2019) and
Sharma et al.’s (2020) findings and suggest that firms should establish
more sensitive relationships with their investors regarding the disclo­
sure of their sustainability performance. These results are not surprising;
researchers (Kumar et al., 2020; Sharma et al., 2020) considered a small
sample of Indian firms and found that FIIs considered India a pollution
haven because of its lenient policy and non-compulsory disclosure pol­
icy on sustainability. This raises an alarming call to the policymakers
that disclosure of firms’ sustainability-performance reports must be
made compulsory as M&As are among the important sources of FIIs and
profitability.
The promoter’s ownership remains negatively related to ESG and
positively related to the profitability measures as a higher concentration
of promoter ownership will ameliorate the agency conflicts (Bhaumik
and Selarka, 2012). The findings that board independence and board
meetings are positively and significantly related to the dependent vari­
ables for the Indian M&A acquiring firms may be due to the diverse
backgrounds of the independent members on the boards. Ind_board
views a firm’s sustainability performance as part of an important
corporate strategy that regulates the firm’s relationship with the
external corporate environment to build its reputation, integrity, and
legitimacy. These results are consistent with the perspectives offered by
the stakeholder theory. A board’s independent members promote the
firm’s participation in sustainability performance.
Based on these findings, it can be articulated that via the processes of

6
S. Kapil and S. Kumar
M&As, sustainability-performance issues are becoming increasingly
relevant. The contribution of this study is twofold: First, this study
contributes to the literature on sustainability performances and the ESG
score by examining changes in board structure that impact ESG scoring.
As mentioned earlier, the literature thus far has focused on the de­
terminants of CG. However, M&As are responsible for introducing
inevitable changes to a board’s structure, and it becomes all the more
important to analyse the CG attributes that impact firm-performance
measures and sustainability performance. Second, this study contrib­
utes to a better understanding of the motivation for M&A activities
(Renneboog and Vansteenkiste, 2019). Previous studies have linked
M&A activities with the target’s performance (Kapil and Barick, 2022),
strategic synergies (Rozen-Bakher, 2018), and organisational culture
(Renneboog and Vansteenkiste, 2019). Our results reveal that M&A
activities are among the effective activities that shape a firm’s envi­
ronmental and social scores in the long run. This study will encourage
the regulators and authorities involved in M&A activities to focus on
sustainability issues. Considering that our collected data were confined
to the acquirers involved in M&A activities, an examination of these
firms’ few CG attributes and ownership structure for analysis is a
recommendation for future research. Our findings are also relevant for
the regulators because M&A deals not only focus on firm performance
but also on sustainability.
CRediT authorship contribution statement
Sheeba Kapil: Conceptualization, Methodology, Investigation, Re­
sources, Writing – review & editing, Supervision. Sarika Kumar:
Methodology, Software, Validation, Formal analysis, Data curation,
Writing – original draft, Visualization.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
Data availability
The authors do not have permission to share data.
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