Does the LBO Deal Affect the Firm's ESG Commitment in Financial Distress Situation ? - Archive ouverte HAL
Communication Dans Un Congrès Année : 2024

Does the LBO Deal Affect the Firm's ESG Commitment in Financial Distress Situation ?

Résumé

This study examines how the leverage buyout deal and the subsequent increase in the financial distress risk (FDR) for firms under LBO affect the firm ESG commitment. A panel data analysis is applied on 182 buyouts and 500 comparable firms from USA between 2006-2022. The first result indicates that firms that are selected for buyout have a significantly higher social engagement and lower governance engagement prior to the LBO deal compared to the post-deal period. In addition, we observe a significant slowdown in the increase of the ESG commitment for buyouts compared to their peers in the post-deal period. The second result from a multivariate analysis indicates that neither the FDR nor the LBO deal (considered in isolation) affect the firm's ESG commitment. However, depending on its size and the increase of its FDR, the firm under LBO decreases its ESG commitment, i.e the bigger a firm under LBO is, the more likely the firm tends to reduce it's ESG commitment when facing with a higher financial distress risk. This result is specifically linked to firms under LBO, as when we run the same regression on comparable firms, we find no evidence of relation between the increase in the financial distress risk and ESG commitment of comparable firms depending on their size. Conversely, an increase in the risk of financial distress does not prevent comparable large firms from increasing their social commitment. Consistent with the salience theory, this study provides new empirical evidence of the wealth transfer hypothesis in buyouts.
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Dates et versions

hal-04595025 , version 1 (30-05-2024)

Identifiants

  • HAL Id : hal-04595025 , version 1

Citer

Fidèle Balume, Jean-François Gajewski, Tao-Hsien Dolly King. Does the LBO Deal Affect the Firm's ESG Commitment in Financial Distress Situation ?. 3rd Investor Emotions & Asset Pricing, University of Lille, Feb 2024, Lille, France. ⟨hal-04595025⟩
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