The effect of environmental, social and governance score on operating performance after mergers and acquisitions

Abstract

AbstractThis paper examines how the corporate social responsibility performance of the acquirer firm, measured with the environmental, social and governance score, is related to postmerger operating performance, by analysing 796 merger operations that took place between 2011 and 2018. The analysis was carried out by first considering the full sample and then dividing the sample into three subsamples: acquirer companies with an environmental, social and governance score below the median, acquirer companies with a rating above the median and finally those companies considered to have a very high score (over 80). To support the results obtained from this analysis, a machine learning technique was subsequently applied to the data. The results obtained from the analysis demonstrated that acquiring companies with a high environmental, social and governance rating manage to generate a significant improvement in operating performance postdeal after the merger, whereas this is not the case for companies with a low score or for companies with a score of above 80. These results seem to demonstrate that although a high environmental, social and governance score can have a positive impact on postmerger operating performance, this only true up to a point. A possible explanation for this could be that the costs involved in integrating and aligning the culture of the two merging companies increase when there is the need to maintain a high score.