Does carbon risk matter for corporate acquisition decisions?

Article


Bose, Sudipta, Minnick, Kristina and Shams, Syed. 2021. "Does carbon risk matter for corporate acquisition decisions?" Journal of Corporate Finance. 70, pp. 1-24. https://doi.org/10.1016/j.jcorpfin.2021.102058
Article Title

Does carbon risk matter for corporate acquisition decisions?

ERA Journal ID19561
Article CategoryArticle
AuthorsBose, Sudipta (Author), Minnick, Kristina (Author) and Shams, Syed (Author)
Journal TitleJournal of Corporate Finance
Journal Citation70, pp. 1-24
Article Number102058
Number of Pages24
Year2021
Place of PublicationNetherlands
ISSN0929-1199
1872-6313
Digital Object Identifier (DOI)https://doi.org/10.1016/j.jcorpfin.2021.102058
Web Address (URL)https://www.sciencedirect.com/science/article/pii/S0929119921001802
Abstract

In this study, we examine whether carbon risk matters in acquisitions. Using a firm's carbon emissions to proxy for carbon risk, we examine whether an acquirer's level of carbon emissions is related to the decision to engage in acquisitions and achieve subsequent acquisition returns. The results show that firms with higher emissions have an increased likelihood of acquiring foreign targets while, at the same time, having a decreased likelihood of acquiring domestic targets. Acquirers with large carbon footprints seek out targets in foreign countries that have low gross domestic product (GDP) or weak environmental, regulatory, or governance standards. We also examine the relationship between carbon emissions and announcement returns. We find that cross-border acquisition announcement returns are higher when acquirers with high carbon emissions acquire targets in countries with fewer regulations or weaker environmental standards. Focusing on the interplay of corporate social responsibility (CSR) and carbon emissions, we find that investors censure acquirers that promote CSR while also having high carbon emissions, thus resulting in worse abnormal returns. This is particularly the case if the target country is wealthy or has stronger country governance or strong environmental protection. Our findings add insight on the channels through which a focus on reducing carbon risk can add value for shareholders.

KeywordsCarbon emissions; Mergers and acquisitions; Corporate governance; Acquisition announcement returns
ANZSRC Field of Research 2020350201. Environment and climate finance
Byline AffiliationsUniversity of Newcastle
Bentley University, United States
University of Southern Queensland
Institution of OriginUniversity of Southern Queensland
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