From ESG Alignment to Value: Post-Merger ESG Dynamics and Market Valuation in Global M&As

This study examines whether targets’ environmental, social, and governance (ESG) performance is associated with acquirers’ post-merger ESG outcomes and market valuation over the merger year and the subsequent two years. We treat controversies-adjusted ESG scores (ESGC) as outcome-based indicators. Using a global panel of 4572 acquirer-year observations from 47 countries between 2002 and 2023, we analyze the association between targets’ ESGC and acquirers’ post-merger ESG trajectories and market value. Tobit estimations trace combined and pillar-level ESG dynamics over the merger year and the first two post-merger years. The results indicate that target ESG performance is associated with persistent improvements in acquirer sustainability, with the strongest effects in social and environmental dimensions and more gradual adjustments in governance, reflecting institutional and organizational integration complexity. Heterogeneity analyses reveal that cross-border within-industry acquisitions generate the largest ESG gains, whereas domestic within-industry transactions are associated with ESG deterioration. Regarding market valuation, acquirers’ own ESG performance is reflected in Tobin’s Q, while target ESG becomes value-relevant with a one-year lag, highlighting a two-stage valuation mechanism linked to post-merger absorption and institutionalization. Adopting a multi-period perspective, the study shows that ESGC track post-merger sustainability outcomes in ways consistent with learning, institutionalization, and legitimacy-based interpretations.