Does reputation risk matter? Evidence from cross-border mergers and acquisitions

Socially irresponsible behavior of a target firm could lead acquirers to pay less for the target, particularly when that behavior is widely reported in the media. Using a cross-country sample between 2007 and 2017, we find that targets with a greater degree of reported negative ESG incidents tend to have lower acquisition premiums. Furthermore, acquisition premiums are lower for targets that have more reported negative ESG incidents than the acquirers themselves. These results suggest that a target’s social performance is an important determinant of the acquisition performance and synergies, and target’s exposure to ESG reputation risk has important economic implications.