Title page 1

Contents 1

ABSTRACT 2

NON-TECHNICAL SUMMARY 3

1. INTRODUCTION 5

2. INSTITUTIONAL BACKGROUND 11

3. DATA 12

4. EMPIRICAL SETUP AND IDENTIFICATION STRATEGY 14

4.1. Difference-in-Differences Setup 14

4.2. Identifying Assumptions 17

4.3. (Local) Average Treatment Effects 18

5. EMPIRICAL ANALYSIS 19

5.1. Regulatory Tightening and Emissions 19

5.2. ETS Regulation: Impact on Firms' Emission Efficiency 23

5.3. The Market for Corporate Control 25

5.3.1. Propensity to Engage in (Green) Acquisitions 26

5.3.2. Green Acquisitions and Emission Reductions 29

5.3.3. Financial Constraints 30

5.3.4. Acquisitions and Carbon Leakage 32

5.4. Robustness 32

5.4.1. Treatment intensity: continuous exposure measure 33

5.4.2. Manufacturing subsector heterogeneity 34

5.4.3. Subsample stability: Orbis coverage 35

5.4.4. Sample period 36

5.4.5. Alternative estimators 38

5.4.6. Alternative green acquisition classification 39

6. CONCLUSION 40

LITERATURE CITED 43

ONLINE APPENDIX 69

A. TEXTUAL ANALYSIS AND CLASSIFICATION OF 'GREEN' M&A DEALS 71

B. SUPPLEMENTARY FIGURES 74

C. SUPPLEMENTARY TABLES 77

ACKNOWLEDGMENTS 88

Table 1. Summary statistics 52

Table 2. Emissions and EU ETS regulatory tightening 53

Table 3. Emission efficiency and EU ETS regulatory tightening 54

Table 4. M&A deals 55

Table 5. Green M&A deals 56

Table 6. Green acquisitions and emission reductions 57

Table 7. Financial constraints 58

Table 8. M&A deals with targets outside of EU ETS member states 59

Figure 1. EU ETS market prices and the MSR reform 60

Figure 2. EU ETS market prices and key regulatory events 61

Figure 3. Sample coverage of emissions (by broad EU ETS sectors) 62

Figure 4. DiD event study on emissions: full sample 63

Figure 5. DiD event study on emissions 64

Figure 6. DiD event study on emissions over operating revenue: full sample 65

Figure 7. DiD event study on emissions over operating revenue 66

Figure 8. Number of (green) M&A deals (conditional on firms' carbon price exposure) 67

Figure 9. DiD event study: green M&A deals 68

Table OA.1. Real Activity Outcomes: operating revenue, Total Assets, and Employment 77

Table OA.2. Impact of EU ETS regulatory tightening on CO₂ emissions: with and without green M&A deals 78

Table OA.3. Standardised continuous treatment 79

Table OA.4. Treatment quartiles 80

Table OA.5. Heterogeneity by NACE 2-digit industry 81

Table OA.6. Testing for Differential Treatment Effects: Orbis vs. Non-Orbis Firms 82

Table OA.7. Separate post dummies for 2017-2019 and 2020-2023 83

Table OA.8. Alternative estimators 84

Table OA.9. Green deals with PQML 85

Table OA.10. Number of green deals (intersection of ClimateBERT and alternative definition) 86

Table OA.11. Number of green deals - subperiods (intersection of ClimateBERT and alternative definition) 87

Figure OA.1. Share of global emissions covered by emission trading systems (ETS) and number of active ETS 74

Figure OA.2. Average emissions, conditional on firms' carbon price exposure (power) 75

Figure OA.3. Average emissions, conditional on firms' carbon price exposure (manufacturing) 76