The Effect of Corporate Environmental Performance (CEP) of an Acquirer on Post-Merger Firm Value: Evidence from the US Market
Abstract
1. Introduction
2. Literature Review and Hypotheses Development
2.1. Theoritical Background
2.2. Environmental Exposure and M&A Performance
3. Data and Methodology
3.1. Sample of Acquisitions
3.2. Data on Environmental Performance
3.3. Firm- and Deal-Specific Control Variables
3.4. Empirical Models
3.5. Estimation Methods
4. Regression Results
4.1. Aggregate Effect
4.2. The Effects of Individual Pillars of Environmental Performance
5. Further Analysis of Environmental Innovation
6. Discussion and Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
Appendix A. CEP Component
Appendix B. Variable Definition and Sources of Data
Variable | Definition and Sources of Data |
Environmental and social score data | |
Environmental Pillar Score | The score is based on three broad categories: emission, innovation, and resource use (Source: Refinitiv). |
Emissions’ performance | The score is based on four categories: CO2 emissions, waste, biodiversity, and environmental management systems (Source: Refinitiv). |
Resource use | The score is based on four broad categories: water, energy, sustainable packaging, and environmental supply chain (Source: Refinitiv). |
Environmental innovation | The score is based on four broad categories: green revenues, research and development, and capital expenditure (Source: Refinitiv). |
Social score | The score is based on four broad categories: community, human rights, product responsibility, and workforce (Source: Refinitiv). |
Firm characteristics | |
∆TQ1 | TQ refers to Tobin’s Q, which is calculated as a ratio of the book value of total assets plus the market value of equity minus book value of equity to the book value of total assets. ∆TQ1 is calculated as the change in the TQ (in percentage points) of the acquirer in year c + 1 minus TQ in c − 1. Year c is the year of the deal. (Source: Compustat) |
∆TQ2 | Average TQ for c + 1 and c + 2 minus TQ in c − 1. (Source: Compustat) |
∆TQ3 | Average TQ for c + 1, c + 2 and c + 3 minus TQ in c − 1. (Source: Compustat) |
Acquirer size | Natural logarithm of acquirer firm’s total assets (Source: Compustat) |
Leverage | Acquirer firm’s book value of long-term debt divided by total assets (Source: Compustat) |
Relative size | The ratio of the deal transaction value to the acquirer’s total assets (Source: Compustat) |
ROA | Acquirer firm’s income before extraordinary items scaled by total assets (Source: Compustat) |
Target size | Natural logarithm of deal value (in million USD). (Source: SDC Platinum) |
Deal characteristics | |
All cash | Coded as 1 if the bid is paid by cash to target’s shareholders; coded as 0 otherwise. (Source: SDC Platinum) |
All stock | Coded as 1 if the bid is executed through stock swap; coded 0 otherwise. (Source: SDC Platinum) |
Diversifying | Coded as 1 if the acquirer and target are not from the same 2-digit SIC; coded 0 otherwise. (Source: SDC Platinum) |
Hostile | 1 represents hostile acquisition, and 0 represents otherwise. (Source: SDC Platinum) |
Private target | Coded as 1 if the target is a private enterprise, coded as 0 otherwise. (Source: SDC Platinum) |
Subsidiary target | Coded as 1 in case the target firm is a subsidiary; coded as 0 otherwise. (Source: SDC Platinum) |
Hi-tech | Coded as 1 if the acquirer’s primary business is high tech, coded as 0 otherwise. (Source: SDC Platinum) |
Instrumental variables | |
Gross State Production per capita (GSPPC) | Gross State Production divided by population. Data Source: US Bureau of Economic Analysis (BEA) |
Industry Average Social score | Industry average of firm-level social score. (Source: Refinitiv). |
1 | While the reversal in climate policy, the announcement to withdraw from the Paris Agreement, weakened environmental protection rules, and commitment during the Trump administration shook the US’s environmental policy, the Biden Government has pledged bold steps to combat climate challenges, both domestically and abroad. Accordingly, along with strengthening US Environmental Protection Authority (EPA) initiatives and incentivizing clean energy, the US then announced the creation of the Office of Environmental Justice to enforce environmental strategy and pursue cases of environmental crime, pollution, and climate change. |
2 | See https://riskandinsurance.com/environmental-coverage-is-becoming-a-bigger-player-in-ma-deals-heres-why-its-becoming-a-necessity/ (accessed on 29 December 2024). |
3 | The other dimensions are community, corporate governance, diversity, employee relations, human rights, product quality and safety. The construct based on KLD Database for the period of 1997–2002. |
4 | The null is that the particular endogenous regressor in question is unidentified. |
5 | The undentification test is an LM test of whether the equation is identified. The null hypothesis is that the equation is underidentified. |
6 | Tests whether the instruments are weak. |
7 | The joint null hypothesis in the Sargen-Hansen test is that the instruments are vaid instruments, i.e., uncorrelated with the error term, and the excluded instruments are correctly excluded from the estimated equation. |
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Completed Bids | Uncompleted Bids | |||||
---|---|---|---|---|---|---|
Variable | Obs | Mean | Std. Dev. | Obs | Mean | Std. Dev. |
Environmental score | 1879 | 28.18 | 28.47 | 125 | 23.67 | 19.16 |
Resource use performance | 1873 | 29.54 | 34.42 | 125 | 19.41 | 26.93 |
Emissions performance | 1873 | 28.93 | 33.87 | 125 | 31.98 | 30.23 |
Env. innovation performance | 1873 | 17.81 | 27.46 | 125 | 23.58 | 20.58 |
Tobin’s Q (TQ) | 1783 | 1.63 | 0.97 | |||
Change in TQ1 | 1751 | −0.063 | 0.76 | |||
Change in TQ2 | 1754 | −0.067 | 0.78 | |||
Change in TQ3 | 1754 | −0.074 | 0.81 |
Pooled OLS | IV (2SLS) | ||||||
---|---|---|---|---|---|---|---|
First Stage | Second Stage | ||||||
ΔTQ1 | ΔTQ2 | ΔTQ3 | CEP | ΔTQ1 | ΔTQ2 | ΔTQ3 | |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
Environmental score | 0.002 ** | 0.003 ** | 0.003 ** | 0.005 | 0.007 * | 0.008 ** | |
Affluence (state) ^ | 17.371 *** | ||||||
Social score (industry) ^ | 1.187 *** | ||||||
Acquirer size | −0.016 | −0.015 | −0.012 | 13.182 | −0.057 | −0.077 | −0.093 * |
Target size | −0.043 *** | −0.040 ** | −0.037 ** | −0.506 | −0.041 *** | −0.038 *** | −0.034 *** |
Relative size | −0.006 ** | −0.006 *** | −0.007 *** | 0.870 *** | −0.008 | −0.010 * | −0.012 ** |
Lag TQ | −0.282 *** | −0.334 *** | −0.362 *** | 1.242 *** | −0.283*** | −0.334 *** | −0.363 *** |
Lag ROA | −0.381 | −0.407 | −0.537 | 28.141 *** | −0.352 | −0.417 | −0.588 * |
Leverage | −0.023 | −0.046 | −0.037 | −14.03 *** | 0.039 | 0.050 | 0.083 |
Hostile | −0.648 | −0.672 | −0.527 | −14.50 | −0.596 | −0.591 | −0.420 |
Cash holding | 0.210 | 0.315 | 0.367 | 16.829 ** | 0.052 | 0.110 | 0.142 |
All cash | 0.047 | 0.075 * | 0.080 * | 1.248 | 0.049 | 0.076 ** | 0.080 ** |
Diversifying | −0.100 ** | −0.113 *** | −0.124 *** | −3.984 *** | −0.113 ** | −0.123 *** | −0.133 *** |
Private target | 0.083 * | 0.129 *** | 0.138 *** | −2.605 | 0.086 | 0.136 ** | 0.149 ** |
Subsidiary target | 0.110 ** | 0.122 ** | 0.130 ** | −3.4058 ** | 0.120 ** | 0.135 ** | 0.147 *** |
Hi-tech | 0.094 *** | 0.110 *** | 0.136 *** | −3.105 ** | 0.112 *** | 0.137 *** | 0.170 *** |
Intercept | 0.620 *** | 0.626 *** | 0.618 *** | −348.977 | 1.227 *** | 1.345 *** | 1.445 *** |
Number of obs. | 1363 | 1366 | 1367 | 1352 | 1349 | 1352 | 1553 |
R-Sq. | 0.282 | 0.323 | 0.356 | 0.278 | 0.311 | 0.337 | |
Year dummy | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Industry FE | Yes | Yes | Yes | No | No | No | No |
Sanderson–Windmeijer multivariate F test of excl. inst, p value | 0.000 | ||||||
Underidentification test: Anderson canon. corr. LM Stat | 74.23 *** | 414.8 *** | 414.2 *** | ||||
Weak identification test: First-stage Cragg–Donald Wald F | 38.34 *** | 340.6 *** | 339.5 *** | ||||
Overidentification test: Sargan_Hansen stat (chi Sq p value) | 0.749 | 0.517 | 0.367 |
Pooled OLS | IV (2SLS) | ||||||
---|---|---|---|---|---|---|---|
First Stage | Second Stage | ||||||
ΔTQ1 | ΔTQ2 | ΔTQ3 | Resource Use | ΔTQ1 | ΔTQ2 | ΔTQ3 | |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
Resource use score | 0.002 ** | 0.002 ** | 0.002 ** | 0.005 | 0.007 ** | 0.009 ** | |
Affluence (state) ^ | 17.897 *** | ||||||
Social score (industry) ^ | 1.158 *** | ||||||
Acquirer size | −0.018 | −0.015 | −0.011 | 16.024 *** | −0.074 | −0.101 | −0.121 * |
Target size | −0.043 *** | −0.041 ** | −0.039 ** | −0.731 | −0.039 *** | −0.037 *** | −0.033 ** |
Relative size | −0.006 ** | −0.006 ** | −0.007 *** | 1.038 *** | −0.009 | −0.011 * | −0.013 ** |
Lag TQ | −0.282 *** | −0.334 *** | −0.363 *** | 1.485 * | −0.286 *** | −0.338 *** | −0.367 *** |
Lag ROA | −0.395 | −0.421 | −0.549 | 38.250 | −0.413 *** | −0.502 | −0.688 ** |
Leverage | −0.006 | −0.026 | −0.018 | −22.708 | 0.092 *** | 0.124 | 0.169 |
Hostile | −0.664 | −0.692 | −0.547 | −5.867 | −0.632 | −0.640 | −0.481 |
Cash holding | 0.226 | 0.325 | 0.371 | 14.645 | 0.067 * | 0.122 | 0.151 |
All cash | 0.052 | 0.079 * | 0.085 ** | 0.815 | 0.053 | 0.080 ** | 0.085 ** |
Diversifying | −0.099 ** | −0.111 *** | −0.123 *** | −4.786 *** | −0.105 ** | −0.113 ** | −0.122 *** |
Private target | 0.083 * | 0.128 *** | 0.137 *** | −3.223 | 0.090 | 0.140 ** | 0.154 ** |
Subsidiary target | 0.115 ** | 0.124 *** | 0.131 ** | −5.523 ** | 0.134 ** | 0.152 *** | 0.166 *** |
Hi-tech | 0.090 ** | 0.105 *** | 0.132 *** | −0.482 | 0.099 ** | 0.119 *** | 0.149 *** |
Intercept | 0.635 *** | 0.638 *** | 0.627 *** | −380.48 *** | 1.389 *** | 1.577 *** | 1.717 *** |
Number of obs. | 1355 | 1358 | 1359 | 1345 | 1341 | 1344 | 1345 |
R-Sq. | 0.283 | 0.325 | 0.358 | 0.274 | 0.301 | 0.321 | |
Year dummy | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Industry FE | Yes | Yes | Yes | No | No | No | No |
Sanderson–Windmeijer multivariate F test of excl. inst, p value | 0.000 | ||||||
Underidentification test: Anderson canon. corr. LM Stat | 46.35 *** | 46.51 *** | 46.48 *** | ||||
Weak identification test: First-stage Cragg–Donald Wald F | 23.43 *** | 23.52 *** | 23.50 *** | ||||
Overidentification test: Sargan_Hansen stat (chi Sq p value) | 0.791 | 0.576 | 0.434 |
Pooled OLS | IV (2SLS) | ||||||
---|---|---|---|---|---|---|---|
First Stage | Second Stage | ||||||
ΔTQ1 | ΔTQ2 | ΔTQ3 | Emissions Score (Inverse) | ΔTQ1 | ΔTQ2 | ΔTQ3 | |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
Emissions score (inverse) | 0.002 * | 0.002 * | 0.002 * | 0.005 | 0.008 ** | 0.010 ** | |
Affluence (state) ^ | 25.414 | ||||||
Social score (industry) ^ | 0.843 | ||||||
Acquirer size | −0.011 | −0.011 | −0.007 | 16.509 | −0.081 | −0.116 * | −0.143 ** |
Target size | −0.043 *** | −0.041 ** | −0.039 ** | −0.603 | −0.040 *** | −0.037 *** | −0.034 ** |
Relative size | −0.005 ** | −0.006 ** | −0.007 ** | 1.091 | −0.009 | −0.013 * | −0.015 ** |
Lag TQ | −0.282 *** | −0.334 *** | −0.363 *** | 1.632 | −0.289 *** | −0.341 *** | −0.371 *** |
Lag ROA | −0.371 | −0.398 | −0.529 | 25.866 | −0.346 | −0.414 | −0.590 * |
Leverage | −0.019 | −0.039 | −0.030 | −13.389 | 0.049 | 0.067 | 0.107 |
Hostile | −0.648 | −0.670 | −0.524 | −17.195 | −0.565 | −0.542 | −0.356 |
Cash holding | 0.242 | 0.340 | 0.385 | 10.246 | 0.088 | 0.139 | 0.167 |
All cash | 0.052 | 0.079 * | 0.085 * | 0.184 | 0.056 | 0.084 ** | 0.089 ** |
Diversifying | −0.103 ** | −0.115 *** | −0.127 *** | −3.375 | −0.112 ** | −0.121 *** | −0.132 *** |
Private target | 0.080 * | 0.124 *** | 0.133 *** | −2.146 | 0.086 | 0.134 ** | 0.149 ** |
Subsidiary target | 0.110 ** | 0.119 ** | 0.126 ** | −3.303 | 0.124 ** | 0.139 ** | 0.153 *** |
Hi-tech | 0.090 ** | 0.106 *** | 0.132 *** | −1.856 | 0.105 *** | 0.128 *** | 0.161 *** |
Intercept | 0.599 *** | 0.617 *** | 0.612 *** | −443.60 | 1.406 ** | 1.637 *** | 1.828 *** |
Number of obs. | 1355 | 1358 | 1359 | 1341 | 1341 | 1344 | 1345 |
R-Sq. | 0.281 | 0.323 | 0.356 | 0.269 | 0.293 | 0.307 | |
Year dummy | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Industry FE | Yes | Yes | Yes | No | No | No | No |
Sanderson–Windmeijer multivariate F test of excl. inst, p value | 0.000 | ||||||
Underidentification test: Anderson canon. corr. LM Stat | 46.09 *** | 45.72 *** | 44.16 *** | ||||
Weak identification test: First-stage Cragg–Donald Wald F | 23.29 *** | 23.10 *** | 22.29 *** | ||||
Overidentification test: Sargan_Hansen stat (chi Sq p value) | 0.869 | 0.957 | 0.951 |
Pooled OLS | IV (2SLS) | ||||||
---|---|---|---|---|---|---|---|
First Stage | Second Stage | ||||||
ΔTQ1 | ΔTQ2 | ΔTQ3 | Env. Innovation | ΔTQ1 | ΔTQ2 | ΔTQ3 | |
(1) | (2) | (3) | (4) | (5) | (6) | (7) | |
Env. Innovation | 0.000 | 0.001 | 0.001 | 0.004 | 0.005 * | 0.006 * | |
Affluence (state) ^ | 7.673 | ||||||
Social score (industry) ^ | 1.525 | ||||||
Acquirer size | 0.015 | 0.019 | 0.022 | 0.602 | −0.013 | −0.015 | −0.016 |
Target size | −0.044 *** | −0.042 ** | −0.040 ** | 0.500 | −0.042 *** | −0.040 *** | −0.037 *** |
Relative size | −0.003 | −0.004 * | −0.004 ** | 0.184 | −0.004 | −0.004 | −0.005 |
Lag TQ | −0.279 *** | −0.331 *** | −0.359 *** | 0.786 | −0.278 *** | −0.326 *** | −0.353 *** |
Lag ROA | −0.329 | −0.347 | −0.476 | 10.803 | −0.276 | −0.308 | −0.452 |
Leverage | −0.044 | −0.066 | −0.057 | 5.131 | −0.001 | −0.007 | 0.008 |
Hostile | −0.677 | −0.703 | −0.556 | 18.163 | −0.643 | −0.658 | −0.504 |
Cash holding | 0.262 | 0.356 | 0.394 | 9.063 | 0.057 | 0.111 | 0.142 |
All cash | 0.052 | 0.077 * | 0.082 * | 1.488 | 0.042 | 0.066 | 0.070 * |
Diversifying | −0.105 ** | −0.118 *** | −0.128 *** | 1.670 | −0.119 *** | −0.132 *** | −0.145 *** |
Private target | 0.080 * | 0.125 *** | 0.134 *** | 2.226 | 0.081 | 0.127 ** | 0.137 ** |
Subsidiary target | 0.107 ** | 0.116 ** | 0.123 ** | 2.106 | 0.113 ** | 0.123 ** | 0.129 ** |
Hi-tech | 0.089 ** | 0.105 *** | 0.132 *** | 1.572 | 0.109 *** | 0.133 *** | 0.165 *** |
Intercept | 0.420 ** | 0.404 ** | 0.399 * | −200.95 | 0.881 *** | 0.858 *** | 0.844 *** |
Number of obs. | 1355 | 1358 | 1359 | 1341 | 1341 | 1344 | 1345 |
R-Sq. | 0.278 | 0.319 | 0.353 | 0.264 | 0.296 | 0.325 | |
Year dummy | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Industry FE | Yes | Yes | Yes | No | No | No | No |
Sanderson–Windmeijer multivariate F test of excl. inst, p value | 0.000 | ||||||
Underidentification test: Anderson canon. corr. LM Stat | 60.419 *** | 61.32 *** | 62.10 *** | ||||
Weak identification test: First-stage Cragg–Donald Wald F | 30.88 *** | 31.36 *** | 31.78 *** | ||||
Overidentification test: Sargan_Hansen statistics | 0.464 | 0.237 | 0.134 |
Relative Deal Size | Obs | Mean | Std. Err. | Std. Dev. | 95% Coefficient Intervals | |
---|---|---|---|---|---|---|
Small | 931 | 17.86 | 0.94 | 28.56 | 16.02 | 19.70 |
Large | 944 | 17.77 | 0.86 | 26.35 | 16.08 | 19.45 |
Combined | 1875 | 17.81 | 0.63 | 27.46 | 16.57 | 19.06 |
Diff | 0.10 | 1.27 | −2.39 | 2.58 | ||
H0: diff = 0 | t = 0.0760, Pr[(T) > (t)] = 0.9395 |
Small | Large | |||||||
---|---|---|---|---|---|---|---|---|
First Stage | First Stage | |||||||
Env. Inn. | ΔTQ1 | ΔTQ2 | ΔTQ3 | Env. Inn. | ΔTQ1 | ΔTQ2 | ΔTQ3 | |
(4) | (5) | (6) | (7) | |||||
Env. Innovation | −0.002 | −0.001 | 0.002 | 0.006 * | 0.007 ** | 0.007 ** | ||
Affluence (state) ^ | −0.262 | 12.22 ** | ||||||
Social score (industry) ^ | 1.110 *** | 1.802 *** | ||||||
Acquirer size | 6.892 *** | 0.037 | −0.016 | −0.078 | 5.469 *** | 0.062 * | 0.072 * | 0.083 ** |
Target size | −0.878 | −0.078 | −0.041 | −0.002 | −0.683 | −0.089 *** | −0.091 *** | −0.089 *** |
Lag TQ | −1.521 | −0.148 *** | −0.265 *** | −0.318 *** | 1.042 | −0.357 *** | −0.375 *** | −0.389 *** |
Lag ROA | 20.864 | −0.587 | −0.702 * | −0.721 * | 5.977 | −0.051 | 0.123 | −0.065 |
Leverage | 4.681 | −0.245 | −0.302 | −0.269 | −9.818 | 0.148 | 0.164 | 0.155 |
Cash holding | 57.483 *** | −0.339 | −0.371 | −0.530 | 11.062 | 0.311 | 0.460 | 0.546 * |
All cash | 3.715 | 0.037 | 0.037 | 0.001 | 2.892 | 0.038 | 0.060 | 0.077 |
Diversifying | −2.242 | −0.070 | −0.119 ** | −0.136 ** | −2.563 | −0.163 *** | −0.166 *** | −0.180 *** |
Private target | −2.089 | −0.127 | −0.133 | −0.134 | −1.770 | 0.200 *** | 0.258 *** | 0.276 *** |
Subsidiary target | −2.361 | −0.120 | −0.153 | −0.158 * | −2.199 | 0.215 *** | 0.235 *** | 0.253 *** |
Hi-tech | −2.962 | −0.008 | 0.046 | 0.093 | −2.337 | 0.201 *** | 0.220 *** | 0.255 *** |
Intercept | −109.448 | 0.679 | 1.181 * | 1.650 ** | −107.558 | 0.489 * | 0.326 | 0.236 |
Number of obs. | 580 | 576 | 579 | 580 | 765 | 765 | 765 | 765 |
Year dummy | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
SW F test of ex. inst., p-value | 0.008 | 0.000 | ||||||
Unidentification test | 9.39 *** | 10.15 *** | 10.70 *** | 55.80 *** | 55.80 *** | 55.80 *** | ||
Weak identification test | 4.774 | 5.171 | 5.482 | 28.09 *** | 28.09 *** | 28.09 *** | ||
Overidentification test | 0.198 | 0.799 | 1.870 | 0.703 | 1.747 | 2.467 |
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Shahiduzzaman, M.; Mudalige, P.; Farooque, O.A.; Alauddin, M. The Effect of Corporate Environmental Performance (CEP) of an Acquirer on Post-Merger Firm Value: Evidence from the US Market. Int. J. Financial Stud. 2025, 13, 125. https://doi.org/10.3390/ijfs13030125
Shahiduzzaman M, Mudalige P, Farooque OA, Alauddin M. The Effect of Corporate Environmental Performance (CEP) of an Acquirer on Post-Merger Firm Value: Evidence from the US Market. International Journal of Financial Studies. 2025; 13(3):125. https://doi.org/10.3390/ijfs13030125
Chicago/Turabian StyleShahiduzzaman, Md, Priyantha Mudalige, Omar Al Farooque, and Mohammad Alauddin. 2025. "The Effect of Corporate Environmental Performance (CEP) of an Acquirer on Post-Merger Firm Value: Evidence from the US Market" International Journal of Financial Studies 13, no. 3: 125. https://doi.org/10.3390/ijfs13030125
APA StyleShahiduzzaman, M., Mudalige, P., Farooque, O. A., & Alauddin, M. (2025). The Effect of Corporate Environmental Performance (CEP) of an Acquirer on Post-Merger Firm Value: Evidence from the US Market. International Journal of Financial Studies, 13(3), 125. https://doi.org/10.3390/ijfs13030125