Navigating Borders and Sustainability: Unravelling the Impact of Sustainability on Cross-Border M&A Performance in Emerging Markets

Against the backdrop of rising sustainability concerns, this study examines the impact of sustainability on the wealth effects of cross-border mergers and acquisitions (CBMAs) initiated by firms from emerging markets. The study investigates how sustainability coherence at the country and firm levels influences shareholder wealth outcomes for emerging market acquirers. By employing multivariate regression, the results indicate that emerging market acquirers achieve significant positive cumulative abnormal returns (CARs) when targeting firms in countries with superior sustainability scores relative to their home countries. While high firm-level environment, social, and governance (ESG) scores may not lead to immediate financial benefits, the combined effect of firm and country sustainability can improve market perceptions, leading to high abnormal returns at the time of the CBMA announcement. Further, we observe that for the target countries with high sustainability scores, there exists a positive relationship between the acquirer ESG score and CARs. We address endogeneity using the two-stage least squares (2SLS) method and Heckman's two-stage selection method and conduct a series of robustness tests to validate the findings. This study offers both theoretical and practical insights for managers and policymakers, addressing a notable gap in the existing body of literature related to sustainability and CBMAs.