ABSTRACT This study provides novel evidence on how green innovation affects firm takeover performance while employing a unique sample of mergers and acquisitions (M&As) from China between 2008 and 2019. Drawing from the resource‐based view (RBV), we argue that green innovation practices are valuable and inimitable resources that provide ethically competitive advantage to firms to bargain on better terms in the takeover market. Consistent with this assertion, our novel findings are threefold. First, based on (a) panel data regression and (b) double/debiased machine learning (DML) techniques, we find that firms with green innovation enjoy positive cumulative abnormal returns (CARs) and pay lower premiums to win bid auctions. Second, our results show that green innovation enables bidders to (a) complete the deals quickly and (b) have certain acquisition choices—that is, they are more likely to acquire private targets and targets from their own industry. Third, we find that financial constraints negatively moderate the main relationship. Overall, we contribute to the debate of business strategy and sustainability by illustrating that green innovation not only enhances the returns of acquirers' shareholders but also strengthens a firm's ethical competitive advantage.
Shahab et al. (Mon,) studied this question.