The Impact of ESG Ratings on M&A Uncertainty: An Empirical Analysis

Sustainable finance has gained increasing importance over the last two decades, and ESG ratings are now considered one of the most important tools to evaluate and assess corporate sustainability efforts. The objective of this thesis is to analyze the relationship between firms’ commitment to sustainability, measured through ESG scores, and uncertainty in M&A transactions, particularly in the phase that follows the announcement of the deal. A large sample of M&A deals covering the period between 2003 and 2023 is employed. To conduct the analyses, linear regression models are employed to test whether acquirers with higher ESG scores are perceived as reducing deal completion uncertainty, measured through two dimensions: the arbitrage spread, which reflects how the market perceives the outcome of the deals, and the time to conclude the deal. Individual environmental, social and governance dimensions are investigated along with the overall ESG score. The results partially confirm the hypotheses: acquirers’ ESG scores are negatively associated with the arbitrage spread, suggesting that the market interprets sustainability as a signal of greater reliability and lower risk. No significant relationship emerges with the time to conclude the deals, as it seems to depend on other factors, including targets’ ESG scores, which are found to be positively associated with time to completion in additional analyses. These results emphasize the dual nature of sustainability, as it reduces uncertainty perceived by the market, partially supporting stakeholder theory, but it does not necessarily contribute to simplifying procedural aspects in M&A processes.