Does carbon risk matter for corporate acquisition decisions?

Bose, Sudipta and Minnick, Kristina and Shams, Syed (2021) Does carbon risk matter for corporate acquisition decisions? Journal of Corporate Finance, 70:102058. pp. 1-24. ISSN 0929-1199


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.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Business (18 Jan 2021 -)
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Business (18 Jan 2021 -)
Date Deposited: 02 Aug 2021 01:29
Last Modified: 29 Oct 2021 01:28
Uncontrolled Keywords: Carbon emissions; Mergers and acquisitions; Corporate governance; Acquisition announcement returns
Fields of Research (2008): 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150299 Banking, Finance and Investment not elsewhere classified
Fields of Research (2020): 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3502 Banking, finance and investment > 350201 Environment and climate finance
Identification Number or DOI: https://doi.org/10.1016/j.jcorpfin.2021.102058
URI: http://eprints.usq.edu.au/id/eprint/42935

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