The Catering Effect of Green Mergers and Acquisitions in Heavy Pollution Industries

ABSTRACTWe examine the motivation for green mergers and acquisitions (green M&As) in heavily polluting firms by considering the relationship between investors’ green M&A preferences and managerial decisions. Using data on green M&As conducted by heavily polluting firms in China for the 2008–2019 period, we construct an index of investors’ green M&A preferences, and find that when investors give a higher (lower) premium to green M&As, heavily polluting firms prefer to implement (avoid) green M&As. The relationship is time-varying, consistent with the catering effect. Simultaneously, when compared with non-SOEs, SOEs have a stronger green M&A catering effect. Finally, we find that managers can use investor preference as a substitute for media supervision to promote green M&A of heavily polluting firms.KEYWORDS: Investor preferencecatering theoryGreen M&Aheavily polluting firmsJEL: G34G40 Disclosure statementNo potential conflict of interest was reported by the author(s).Additional informationFundingThe work was supported by the the Soft Science Research Project from Department of Science and Technology in Zhejiang Province [GrantNo.2021C25014].