How do Green Acquirers Select Targets? Value of Green Innovation in Takeovers

A burgeoning literature on green mergers and acquisitions (M&As) is based on the assumption that acquirers are polluting firms and buy targets with green resources to gain sustainable development, ignoring the fact that acquirers can also have green resources. This study explores how green acquirers select their targets and realize benefits in the international takeover market. Drawing upon the resource-based view and information asymmetry perspective, we argue that green acquirers have a competitive advantage and prefer targets with lower firm-level (publicly listed target) and industry-level (targets from the related industry) information asymmetries in order to better estimate the target's value and avoid the risk of overpayment. Findings from 7788 M&As announced between 2005 and 2021 support our argument, showing that green acquirers buy targets with lower information asymmetries and earn higher returns. We also find that board characteristics and takeover experience are boundary conditions affecting the target selections of green acquirers. Our study contributes to green M&As and information economics by emphasizing the interplay of green innovation and lower information asymmetries in target selection and value creation.