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The Impact of the ESG Rating on the Bid Premium Paid in M&A Transactions in the Developed and Emerging Capital Markets

Student: Elizaveta Ismailova

Supervisor: Svetlana Grigorieva

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2024

Environmental, social and governance (ESG) programs precipitously gain an importance across the companies in various industries. Some professionals believe that profound ESG performance positively affects long-term growth. In mergers and acquisitions (M&As), dealmakers more often conduct ESG due diligence on target companies. This procedure may reveal material findings and significantly influence deal. The evidence from surveys shows that some acquirers ready to offer higher premiums for targets with robust ESG practices. Therefore, this research paper aims at analyzing the impact of ESG on the size of bid premium in mergers and acquisitions. This paper uses Refinitiv data and includes 1,315 M&A deals in a period from 2008 to 2023. The methodology includes regression analysis and robustness check procedures. Results show that the impact of ESG on bid premium differs across developed and emerging markets. Overall, acquirers pay ESG premium for targets in developed markets – Europe, United States, Japan. Besides, ESG increases premium in cross-border transactions in BRICS, Asia, United States and Japan. Moreover, there is evidence that effect of ESG on premium can be more complicated depending on industry and characteristics of transaction.

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