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The effect of ESG on value creation from mergers and acquisitions. What changed during the COVID-19
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pandemic?
Tampakoudis,
Corporate
Ioannis
Governance:
Noulas,
2021 The Emerald 2023
10.1108/CG- Athanasios
JOUR 21 6 1472-0701 2021 /01 International Publishing 1117 1141 /12
10-2020-0448 Kiosses,
/01 Journal of Limited /04
Nikolaos
Business in
Drogalas,
Society
George
Purpose The purpose of this study is to investigate the relationship between environmental, social and governance
(ESG) performance and shareholder wealth in the context of mergers and acquisitions (M&As) before and during
the coronavirus (COVID-19) pandemic. Design/methodology/approach This paper uses a sample of 889 completed
M&As announced by US firms between 1 January 2018 and 31 July 2020. Announcement abnormal returns are
estimated using an event study methodology and the relation of ESG performance to shareholder value creation is
tested with univariate and multivariate cross-sectional regressions. Findings This study provides evidence for a
significant negative value effect of ESG performance for the shareholders of acquiring firms during the entire
sample period. The negative effect appears to be stronger, as the onset of the COVID-19 crisis. This suggests that,
during the pandemic-driven economic turmoil, the costs of sustainability activities outweigh any possible gains,
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providing evidence in support of the overinvestment hypothesis. Research limitations/implications The results of
the study have important implications for firms, investors and policymakers. Firms should be more cautious with
regard to extensive investments in ESG activities, particularly during economic turmoil. For shareholders, the
results suggest that ESG engagement is not a resilience factor in an exogenous shock such as the COVID-19
pandemic. In terms of policymaking, the sustainability disclosure framework should remain voluntary allowing
firms to report material ESG-related issues. The main limitation of the study is related to data availability
regarding ESG performance. Originality/value To the best of the knowledge, this is the first study that investigates
the effect of ESG performance on shareholder value in the market for corporate control before and during the
COVID-19 pandemic.
UR https://doi.org/10.1108/CG-10-2020-0448