Does carbon risk matter for corporate acquisition decisions?
Article
Article Title | Does carbon risk matter for corporate acquisition decisions? |
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ERA Journal ID | 19561 |
Article Category | Article |
Authors | Bose, Sudipta (Author), Minnick, Kristina (Author) and Shams, Syed (Author) |
Journal Title | Journal of Corporate Finance |
Journal Citation | 70, pp. 1-24 |
Article Number | 102058 |
Number of Pages | 24 |
Year | 2021 |
Place of Publication | Netherlands |
ISSN | 0929-1199 |
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. |
Keywords | Carbon emissions; Mergers and acquisitions; Corporate governance; Acquisition announcement returns |
ANZSRC Field of Research 2020 | 350201. Environment and climate finance |
Byline Affiliations | University of Newcastle |
Bentley University, United States | |
University of Southern Queensland | |
Institution of Origin | University of Southern Queensland |
https://research.usq.edu.au/item/q6807/does-carbon-risk-matter-for-corporate-acquisition-decisions
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