Acquirer’s Carbon Risk, Host Country Environmental Regulations, Cross-Border M&A and Carbon Emissions: Evidence from China

Due to imperfect environmental regulation system, developing countries may be treated as “Pollution Havens” by firms from developed countries, imposing impacts on the local and even global environment. Thus, this paper examines the following questions at the country and city levels, respectively: First, whether China’s environmental regulation system (i.e., government and civil environmental regulations) has an impact on the M&A location choices of developed-country acquirers and what the moderating role will the acquirers’ carbon risks play. Second, whether the carbon risks of acquirers from developed countries entering China have an impact on carbon emissions in target regions and what moderating role will the environmental regulation system in the target regions play. By collecting 810 M&A deals from 2002 to 2021 in BvD_Zephyr database and conducting empirical analysis based on logistic, time series, and panel fixed effect regressions, we find that: first, environmental regulations at the country level often have a greater deterrent effect than those at the city level. Second, environmental regulations in China suffer from the problem of a “top down” system, i.e., although government environmental regulations have many measures and thus a high deterrent effect, the effects of civil environmental regulations are poor. Third, attracting foreign investment may help reduce carbon emissions.