Abstract:

Using ESG ratings from seven major agencies to construct a firm-level measure of ESG risk based on cross-rater dispersion, we document robust evidence that firms undertaking green mergers and acquisitions (M&As) exhibit higher ESG risk. This effect is stronger when information disclosure quality is lower, when institutional ownership is lower, and when managerial agency costs are higher, consistent with asymmetric information, weak external monitoring, and opportunistic implementation elevating both ESG performance risk and information risk. To strengthen causal inference, we construct a propensity score matched sample, estimate an instrumental variable specification, utilize the Heckman correction, and find qualitatively similar results. Importantly, we exploit China’s New Energy Polit City program as a quasi-natural experiment, design a difference-in-differences analysis, and document that the positive effect of green M&As on ESG risk becomes weaker for firms located in the pilot cities after policy implementation. Cross-sectional tests further indicate stronger effects among state-owned enterprises, financially constrained firms, and firms with lower managerial environmental awareness. Finally, mediation analysis suggests that green M&As are associated with a higher likelihood of greenwashing, which in turn amplifies ESG risk. Overall, our findings highlight how strategically motivated sustainability transactions can intensify ESG-related uncertainty and information frictions in external assessments.

Please choose your submission type: Full Paper

Primary Track: Sustainable and Responsible Business

Keywords: responsible business;economics;CSR

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Ms. Yubo Wang