Abstract
Firms increasingly face transition climate risk as policy, regulatory, and market forces accelerate the shift toward decarbonization. We examine whether, and under what conditions, firms respond to transition risk by undertaking green mergers and acquisitions (M&As), and whether such deals deliver tangible environmental outcomes. Drawing on the resource-based view and legitimacy theory, we hypothesize and find that transition risk spurs green M&A activities. This relation is stronger for firms that attract greater media coverage, consistent with external scrutiny elevating deal visibility and expected payoffs. However, green-oriented leaders and ISO 14001 certification attenuate the effect, suggesting that stronger preexisting internal governance reduces the incremental benefit of M&A-based adaptation. To address endogeneity concerns, we employ an instrumental variable approach and obtain similar results, and we further exploit the staggered implementation of the Low Carbon Cities Program as a quasi-natural experiment, documenting that high-risk firms located in pilot cities increase green M&As after the policy is adopted. Additional analyses show that the baseline effect is concentrated among firms facing fewer financing constraints and is driven by transition rather than physical risk. Finally, green M&As undertaken by high-risk firms are followed by increases in green innovation, indicating substantive capability building rather than symbolic greenwashing.