Biodiversity risk and payment methods in mergers & acquisitions

• Examines how biodiversity risk affects payment method choices in M&A. • Higher target-firm’s biodiversity risk increases the likelihood of stock financing. • Higher information asymmetry between acquirers and targets strengthens the effect. • Greater financial constrain of acquirer strengthens the effect. • Weaker governance of acquirer strengthens the effect. • Identifies biodiversity risk as a novel, financially material factor in deal structuring. We document a significant increase in the percentage of stock financing in mergers and acquisition (M&A) deals when target firms’ biodiversity risk (BDR) is high. Further analysis shows that this relationship is enhanced by high information asymmetry between acquirers and targets, greater financial constrain and poor governance mechanisms of acquirers. These results remain robust across subsamples and alternative specifications, highlighting BDR as a novel and financially materialized factor shaping financing design of M&A deals.