Do sustainable practices influence value creation through acquisition? An analysis of Indian industries

Abstract

 This study examines the impact of pre-acquisition sustainability performance on announcement returns and post-acquisition market value in the metals and mining industry of India, based on acquisition dates. This study uses Bloomberg database data to derive proxy measures of sustainability using environmental, social, and governance (ESG) scores. It examines acquisitions from Nifty 500 companies from 2010 to 2020, focusing on the top 8 industries. The event study approach determines abnormal returns and cumulative abnormal returns over various periods. Two regression analyses evaluate the influence of pre-acquisition ESG scores on acquisition returns and market valuation. The announcement returns of the mining sector are adversely influenced by environmental scores, while the chemical sector benefits from positive social scores. Moreover, the environmental and social scores exert a detrimental impact on the valuation of the oil and gas industry. In a pre-acquisition scenario, investors can make informed decisions about a company's environmental, social, and governance issues, leading to above-average short-run profits in various industries, including chemical, metals, mining, and oil and gas. In the short term, investors can leverage free cash flow, earnings multiple analysis, and environmental, social, and governance considerations to invest in companies capable of generating above-average profits.