Circular economy and M&A: How target firms’ sustainable orientation shapes due diligence dynamics?

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Abstract

This article examines how the circular economy (CE) orientation of target firms influences the due diligence undertaken by acquirers in the mergers and acquisitions (M&A) market. Employing ordinary least squares (OLS) regressions on a unique sample of 3,159 European M&A operations, the findings reveal that due diligence activities are significantly faster when acquirers deal with more CE-oriented target firms. This result is consistent with the view that innovative sustainability approaches, such as CE, are used by investors to alleviate information asymmetry concerns in the market for corporate control. Moreover, additional analysis highlights that the association between circular targets and expedited due diligence has strengthened over time, reflecting a recent shift in investors’ understanding of CE practices. Overall, the results underscore the growing importance of CE in the M&A market, offering valuable implications for managers, investors, and policymakers.

Keywords: Mergers and Acquisitions, M&A, Circular Economy, Due Diligence, Time Trend

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G34, Q56, L21

Received: 12.12.2024
Accepted: 17.03.2025
Published online: 19.03.2025

How to cite this paper: Spagnuolo, F. (2025). Circular economy and M&A: How target firms’ sustainable orientation shapes due diligence dynamics? Corporate Ownership & Control, 22(1), 139–147. https://doi.org/10.22495/cocv22i1art11