Economic effects by merger and acquisition types in the renewable energy sector: An event study approach

Abstract

This study classifies the types of mergers and acquisitions (M&A) carried out in the renewable energy industry and explores their effects on enterprise value. Both the generalized autoregressive conditional heteroskedasticity and the ordinary least squares methodologies are used in an event study in order to improve the reliability of the presented analysis. In order to understand how M&A type affects enterprise value depending on the inter-relationship between the acquirer and target business, M&A cases are divided into four groups: homogeneous, heterogeneous-renewable, heterogeneous-energy, and heterogeneous-other. From this analysis, four implications can be drawn. First, homogeneous M&A shows the biggest effect on enterprise value, indicating that operating synergy and increasing market power are important factors when renewable energy firms undertake M&A. Second, M&A with other industries of which financing companies take part in most show the second largest effect on enterprise value, meaning that renewable energy is considered to have potential as an investment product. Further, in the analysis of the wind power industry, the result that heterogeneous-other M&A shows an even greater effect suggests that wind power is deemed to have a high potential for growth as an industry for investment. Lastly, renewable energy M&A in existing energy industries have negative effects on enterprise value, indicating that strict regulations on the use of clean energy such as renewable energy result in energy companies incurring considerable costs.