Blockholders and the ESG performance of M&A targets

This paper investigates the effects that certain characteristics of blockholders have on the environmental and social performance of M&A target firms. First, adopting a counterfactual methodology on a large sample of listed companies, we show the existence of a positive impact of blockholders on target ESG performance. Then, we find that the ESG performance of the target firm does not differ depending on whether the blockholder is a financial or a strategic buyer. This contrasts the general wisdom that the aim of financial acquirors is to maximize short-term profit and so will likely overlook long-term sustainability projects. In addition, acquisitions that are followed by a decrease in leverage are linked to significantly higher ESG performance over the long-term. These results highlight the positive impact of blockholders’ equity investments on environmental and social practices—both strategic and financial. This novel empirical evidence should be valuable to policymakers who wish to define an institutional environment that can speed up sustainable transitions and for investors and managers evaluating M&A deals.