Does target country's climate risk matter in cross-border M&A? The evidence in the presence of geopolitical risk

The impact of climate risk on the payment method in cross-border M&A remains largely unknown in the literature. Using a large sample of UK outbound cross-border M&A deals in 73 target countries from 2008 to 2020, we find that a UK acquirer is more likely to employ an all-cash offer to signal its confidence in a target's value if the target country faces a higher level of climate risk. This finding is consistent with the confidence signalling theory. Our results also suggest that acquirers are less likely to target vulnerable industries if target countries' climate risk is high. In addition, we document that the presence of geopolitical risk would weaken the association between payment method and climate risk. Our findings are robust to the use of an instrumental variable approach and alternative measures of climate risk.