Stemming the tide: Does climate risk affect M&A performance?

We examine the effect of climate change risks (CCR) on firms' decision of engaging in mergers and acquisitions (M & A) and M & A performance. In this study we use the responses by firms on 'climate change-related risks and opportunities' of the Carbon Disclosure Project (CDP) survey and 1372 deals of US listed firms during 2010-2020. Consistent with risk vulnerability theory, our evidence indicates that firms with higher CCR have a lower probability of engaging in M & As. After controlling for possible endogeneity, our results also indicate that if acquirers with higher climate change risks choose to engage in M & A, it significantly reduces the announcement returns. These findings suggest that extant measures of climate change risks should be rethought when evaluating M & A efficiency. More broadly, our paper provides causal evidence that managers need to integrate CCR into their formal risk management systems to avoid unsuccessful M & As.