An Empirical Investigation of the Impact of Environmental Policy on M&A Activities

In this chapter we examine the link between the stringency of environmental policies and merger activities in the energy sector using 2010–2020 data obtained from a sample of 32 countries. The evidence, from an exogenously fitted model, suggests that countries with stricter environmental regulations tend to have fewer energy-related M&A activities. Moreover, controlling for the endogeneity of pollution intensities, we find that stricter environmental policies lead to lower pollution intensities which are in turn correlated with fewer M&A activities. Our results suggest that when environmental policies are stricter either (1) energy prices are already higher and energy producers may find it challenging to justify the price effect of mergers or (2) energy producers may already have cleaner products/technologies and do not face the need to merge for sharing or accessing greener resources and capabilities.