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The Role of Sustainability in M&A Deal Value Creation

Home » Insights » The Role of Sustainability in M&A Deal Value Creation

The Role of Sustainability in M&A Deal Value Creation

by Khadija Tahir

Recent years have been characterized by increased attention from both the business and theoretical sides towards the issues of social capital and sustainability capital around the world. While previous scholars on the topic have provided mixed empirical evidence on the impact of Corporate Social Responsibility (CSR) activities on shareholder wealth. McWilliams and Siegel, 2000), the interest in the issue of corporate sustainability has had a further acceleration considering the recent COVID-19 pandemic when the accumulation of social capital serves as insurance during times of crisis. Social capital and trust are critical determinants of an economy’s long-term economic and financial development. This effect emerges at the microeconomic level as well. As recent studies document that firms with high social capital levels are more resilient to systemic shocks than their peers.

Operations

1 The main motivation of this paper is to investigate merger and acquisition operations (M&As) from the perspective of the effect of Corporate Social Responsibility. Particularly concerning short- and long-term post-merger financial and sustainability performance. Mergers and Acquisitions (M&A) transactions impact the operational nature of the company. And its relationship with stakeholders focused on maximizing the value of their investments.

Main Points

On the other hand, acquirers have to be more attentive to potential risks when investing in an M&A. Because their concerns about environmental, social, or safety risks might be reflected in financial and reputational burdens 2. In the period after the M&A. 3, Our theoretical framework is particularly based on a recent view of agency and stakeholder theory. Which established that being socially responsible is an integral part of the company’s economic function. That the separation between the economic and the noneconomic dimensions of social responsibility is artificial. And the company may assume environmental responsibility not only to bring spill-over benefits to the global community. But also to achieve its own strategic goals.

5 published a report which assumed that environmental, social, and governance (ESG) issues can be applied to financial valuations. This kind of report stimulated the creation of the Principles for Responsible Investing (PRI) in 2006 and led to the creation of the Sustainable Stock Exchange6 in 2009 by the UN Environment Program Finance Initiative and the Principles for Responsible Investing, the UN Global Compact and the UN Conference on Trade and Development. Our paper is inspired by the empirical work of, those who proved that acquirers with high CSR are unlikely to fail and more likely to bring higher merger announcement returns in comparison with low CSR acquirers.

Deals

We consider an initial very large sample of deals (6562 M&A deals) in the Hospitality Sector in terms of countries considered (131) and market conditions (our data sample ranges between the years 2000 and 2019). 7 and we measure corporate sustainability (CSR) according to previous scholars from the standpoint of very popular ESG. (environmental, social, and governance) metrics. In this way, we focus not only on the overall ESG score but also demonstrate findings for single ESG dimensions. Sustainability indicators external stakeholders on a macro level for regulatory, control, influence, and risk minimization purposes and a micro level, inside the company, for goal setting, control, and surveillance of sustainability performance.

Empirical work

We believe that this is one of the first empirical works that try to create a bridge between long-term performance. In M&A acquisitions and CSR factors. Our approach to focus on ESG by measuring the CSR intensity is coherent with the evidence. That the ESG framework is also widely nowadays by investors as a criterion to assess. Whether a company is environmentally, socially, and governmentally conscious. In line with the previous, our main outcomes offer strong evidence. In favor of a modern view of agency theory and an integrating view of stakeholder theory. Signaling a positive relationship between increased company reputation. (due to increased social and sustainability capital) and much better corporate performance in the long term.

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