EFFECT OF CORPORATE SOCIAL

RESPONSIBILITY ON M&A: ANALYSIS

OF PRE-MERGER PERFORMANCE
AND POST-MERGER SYNERGY

Andrei Ivlev

Moscow, 2021

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Introduction
Chart 1. Global AUM invested in ESG mandates (in USD tn)

Environmental, Social and Governance (ESG) criteria:

• At the start of 2018 more than USD 30 trillion of total

assets under management already factored in ESG
principles
• ESG investments are expected to further grow and to
pass the USD 100 trillion mark by 2028

Source: Deutsche Bank, Global Sustainable Investment Alliance, web research

Chart 2. ESG issues importance to senior executives

ESG in M&A:

• 83% of business leaders say that ESG factors will be

increasingly critical to M&A decision making
• 90% of respondents said they will conduct ESG due
diligence of the target company

Source: Mergermarket survey: ESG on the Rise: Making an Impact in M&A

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Motivation

• Empirically evaluate whether the success of the M&A deal

Idea: depends on ESG score of the target and the acquiring company

• Empirical analysis of ESG scores of the acquirer and the target influence
on M&A cumulative abnormal returns
Main additions: • Comprehensive empirical evidence of the importance of CSR in
corporate governance on the example of mergers and acquisitions

Contribution: • Practical implication of ESG scores in determining the success of M&A deal

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Model description
Event study
Market model:
𝑅𝑖𝑡 =𝛼 𝑖 + 𝛽 𝑖 𝑅𝑚𝑡 + 𝜀 𝑖𝑡 (1)

Where = the return on market index on time t

= sensitivity measure of firm i to the market
= mean return over the period not explained by the market
is the error parameter, ,
Cumulative abnormal return:
Abnormal returns: 𝜏
^𝑖− ^
𝐴𝑅 𝑖 𝜏 = 𝑅𝑖 𝜏 − 𝛼 𝛽𝑖 𝜏 𝑅 𝑚 𝜏 (2) 𝐶𝐴𝑅𝑖 = ∑ 𝐴𝑅𝑖𝑗 (3)

Where = the actual return 𝑗=−𝜏

and are estimated coefficients from the Where A = the abnormal return of firm i for day
ordinary-least-squares (OLS) regression (1) in the event window (2)

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Results (1/3)
Average CAR for +- 20 days of the announcement date by ESG of acquirer

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Results (2/3)
Choosing Set of Independent Variables in CAR regression Choosing Event Window Specification

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Results (3/3)
Summary on ESG regressions

Regression descriptive power statistics

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Conclusion and Practical Implications
Scientific • There is a small number or complete absence of works related to the quantitative
purpose analysis of the influence of ESG score on the success of M&A deals. This work
contributes to the scientific study of the importance of CSR practices for firms

• This paper highlights the benefits of CSR practices for the corporate
Empirical community; acquiring companies may use the evidence presented to
purpose improve their own ESG score and to search for targets with higher ESG
scores to derive greater benefit from M&A deals
• This paper is also useful for the investor community as it proves the
importance of ESG characteristics when making investment decisions
• In general, with growing evidence on the importance of CSR practices for
the firm, more firms will practice such, which will consequently come with a
direct benefit to the society and environment

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APPENDICES

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Appendix 1
Matrix of correlations: GVIF for explanatory variables:

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Appendix 2
Event study statistics (example) Graph for average cumulative abnormal return (example)

CARs significance tests

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Appendix 3
Distribution of ESS metric of acquirer and target

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