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Takeover Vulnerability and the Discipline of ESG Overinvestment

Tunyi Tunyi Abongeh Orcid Logo, Ruth Sagay Orcid Logo, Reon Matemane Orcid Logo

Business Strategy and the Environment

Swansea University Authors: Tunyi Tunyi Abongeh Orcid Logo, Ruth Sagay Orcid Logo

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DOI (Published version): 10.1002/bse.70632

Abstract

While takeovers serve a disciplinary role by replacing inefficient managers, the threat of takeovers may compel firms to divert attention from Environmental, Social and Governance (ESG) efforts as a strategic response to external pressure, especially when such firms are already overinvesting in ESG....

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Published in: Business Strategy and the Environment
ISSN: 0964-4733 1099-0836
Published: Wiley 2026
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URI: https://cronfa.swan.ac.uk/Record/cronfa71394
first_indexed 2026-02-09T02:09:43Z
last_indexed 2026-03-13T05:24:50Z
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spelling 2026-03-12T15:55:15.7164609 v2 71394 2026-02-09 Takeover Vulnerability and the Discipline of ESG Overinvestment eefe2792c8eed5b49feede33981dfa53 0000-0002-5761-931X Tunyi Tunyi Abongeh Tunyi Tunyi Abongeh true false d7895eef2fc23a1cda57ec48e28b66bd 0000-0002-1237-7206 Ruth Sagay Ruth Sagay true false 2026-02-09 CBAE While takeovers serve a disciplinary role by replacing inefficient managers, the threat of takeovers may compel firms to divert attention from Environmental, Social and Governance (ESG) efforts as a strategic response to external pressure, especially when such firms are already overinvesting in ESG. We test this conjecture using a panel of 19,564 firm-year observations for NYSE and NASDAQ-listed firms from 1994 to 2019. Our findings indicate that ESG performance declines in the year preceding takeover attempts and, more generally, as firms' vulnerability to takeover bids increases. This effect is more pronounced in firms with prior ESG overinvestment, suggesting that firms respond to takeover threats by scaling back excess ESG initiatives. Further analysis reveals that this response is stronger in financially constrained firms, firms with more compliance-oriented and reputationally sensitive boards and firms where the CEO holds significant influence over the board. Conversely, the effect is weaker in firms led by highly capable managers and those with large shareholders, consistent with stronger governance constraining opportunistic ESG retrenchment under takeover pressure. Overall, our results suggest that firms' ESG decisions are shaped by takeover threats, with their response influenced by prior ESG investments, financial constraints and governance structure. Journal Article Business Strategy and the Environment 0 Wiley 0964-4733 1099-0836 corporate governance; ESG engagement; financial constraints; mergers and acquisitions; takeover threats; takeover vulnerability 12 2 2026 2026-02-12 10.1002/bse.70632 COLLEGE NANME Management School COLLEGE CODE CBAE Swansea University Other 2026-03-12T15:55:15.7164609 2026-02-09T02:03:23.1046727 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Tunyi Tunyi Abongeh 0000-0002-5761-931X 1 Ruth Sagay 0000-0002-1237-7206 2 Reon Matemane 0000-0003-0225-3928 3 71394__36406__c329b666f4664c6e8372395bd3d56ed6.pdf 71394.VoR.pdf 2026-03-12T15:37:16.3392084 Output 565582 application/pdf Version of Record true © 2026 The Author(s). This is an open access article under the terms of the Creative Commons Attribution License. true eng http://creativecommons.org/licenses/by/4.0/
title Takeover Vulnerability and the Discipline of ESG Overinvestment
spellingShingle Takeover Vulnerability and the Discipline of ESG Overinvestment
Tunyi Tunyi Abongeh
Ruth Sagay
title_short Takeover Vulnerability and the Discipline of ESG Overinvestment
title_full Takeover Vulnerability and the Discipline of ESG Overinvestment
title_fullStr Takeover Vulnerability and the Discipline of ESG Overinvestment
title_full_unstemmed Takeover Vulnerability and the Discipline of ESG Overinvestment
title_sort Takeover Vulnerability and the Discipline of ESG Overinvestment
author_id_str_mv eefe2792c8eed5b49feede33981dfa53
d7895eef2fc23a1cda57ec48e28b66bd
author_id_fullname_str_mv eefe2792c8eed5b49feede33981dfa53_***_Tunyi Tunyi Abongeh
d7895eef2fc23a1cda57ec48e28b66bd_***_Ruth Sagay
author Tunyi Tunyi Abongeh
Ruth Sagay
author2 Tunyi Tunyi Abongeh
Ruth Sagay
Reon Matemane
format Journal article
container_title Business Strategy and the Environment
container_volume 0
publishDate 2026
institution Swansea University
issn 0964-4733
1099-0836
doi_str_mv 10.1002/bse.70632
publisher Wiley
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
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description While takeovers serve a disciplinary role by replacing inefficient managers, the threat of takeovers may compel firms to divert attention from Environmental, Social and Governance (ESG) efforts as a strategic response to external pressure, especially when such firms are already overinvesting in ESG. We test this conjecture using a panel of 19,564 firm-year observations for NYSE and NASDAQ-listed firms from 1994 to 2019. Our findings indicate that ESG performance declines in the year preceding takeover attempts and, more generally, as firms' vulnerability to takeover bids increases. This effect is more pronounced in firms with prior ESG overinvestment, suggesting that firms respond to takeover threats by scaling back excess ESG initiatives. Further analysis reveals that this response is stronger in financially constrained firms, firms with more compliance-oriented and reputationally sensitive boards and firms where the CEO holds significant influence over the board. Conversely, the effect is weaker in firms led by highly capable managers and those with large shareholders, consistent with stronger governance constraining opportunistic ESG retrenchment under takeover pressure. Overall, our results suggest that firms' ESG decisions are shaped by takeover threats, with their response influenced by prior ESG investments, financial constraints and governance structure.
published_date 2026-02-12T05:33:58Z
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score 11.100225

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