Environmental impact on acquirer M&A premium payments: Japanese domestic and cross-border acquisitions

Purpose This study examines the extent to which the environmental performance scores of Japanese acquiring firms are correlated with premiums they pay in M&A transactions. Additionally, we explore whether premiums differ between domestic and cross-border acquisitions. Design/methodology/approach By employing Signaling Theory and Agency Theory, we analyze the mechanisms behind acquirers' strategic decisions in both internal and external contexts. We analyze 362 Japanese acquisition deals and classify them as domestic or cross-border, with most cross-border deals involving targets from the United States. Findings Our findings reveal that Japanese acquirers with higher environmental scores are more likely to pay higher premiums for their targets. Furthermore, our study shows that the relationship between acquirers' environmental scores and M&A premiums is more pronounced for cross-border targets than for domestic ones. Originality/value In contrast to previous studies that primarily focused on the target side, we specifically examined the acquirer side by investigating whether higher environmental scores of acquiring firms are associated with higher premiums paid for targets. We also provide insights into Japanese acquirers and cross-border acquisitions, in contrast to the majority of research that has focused on US firms.