When nature calls for action: biodiversity risk and green mergers and acquisitions

Biodiversity loss is a critical environmental issue affecting financial markets, corporate operations, and regulatory frameworks. In this vein, we provide robust evidence that a firm’s exposure to biodiversity risk increases the likelihood of green mergers and acquisitions (M&As). Using staggered provincial ecological compensation policies as the instrumental variable, we establish causality. Further, our findings are (a) more pronounced for firms in heavy pollution industries and firms with CEO environmental orientation, and (b) attenuated for firms in high-technology sectors. Overall, the results support the strategic opportunity conversion mechanism whereby firms transform biodiversity threats into competitive advantages through targeted acquisitions.