How does climate change risk affect mergers and acquisitions? International evidence

This thesis investigates the impact of climate risk on mergers and acquisitions (M&A), with a particular focus on strategic responses by acquiring firms. Specifically, drawing on real options theory and theories referred to asymmetric information around M&A transactions, the study explores how climate-related risks in target firms and countries influence M&A dynamics including investment decisions, payment methods, ownership choices and post-bid performance. Employing a newly constructed dataset that merges country-level climate vulnerability indicators and firm-level climate exposure with firm-level, country-level and deal-level data, the empirical analysis utilizes regression models to identify significant relationships between target climate risk and acquirer investment behavior. The results indicate that higher levels of climate risk in target countries are associated with a less active market for M&As. Moreover, the study finds that higher target firm-level climate risk exposure is linked with higher probability of cash payment options and initiates a plausible mechanism for this relationship that is the enhanced information disclosure of target firms. In addition, the study shows a negative correlation between the extent of a target firm's climate risk exposure and the percentage of target shares pursued in an acquisition proposal. Finally, the study also finds a positive relationship between target climate risk exposure and acquirer shareholder value in short term and long term. These findings suggest that acquirers incorporate target climate-related risk into their strategic decision-making. These findings contribute to the existing body of research on the potential impacts of climatechange-related risks on corporate decisions which is achieved through analysing M&As decisions. The thesis concludes by offering practical recommendations for corporate managers, investors, regarding climate risk assessment and recommending some future research directions.