and Leverage Ratios
Six Measures of Post-Deal Health
Each ratio is computed annually for every firm from FactSet Fundamentals. The change between the two-year pre-deal window (T-2, T-1) and the three-year post-deal window (T+1, T+2, T+3) is the Δ (delta) value used in every regression on the site.
Table 4: How Each Tier Changed
Average change in each ratio, by HIP ESG tier, across the 60-firm sample. Positive numbers mean improvement post-deal.
| Tier | N | Avg HIP | ΔROA | ΔROE | ΔEBITDA Mgn |
|---|---|---|---|---|---|
| HIGH | 20 | 0.536 | +1.33% | +1.78% | +1.96% |
| MEDIUM | 20 | 0.373 | +0.33% | +0.31% | +0.44% |
| LOW | 20 | 0.163 | -0.81% | -0.45% | -0.04% |
| HIGH minus LOW Spread | - | 0.373 | +2.14% | +2.23% | +2.00% |
t-statistic on ΔROA gap: 8.15 (p < 0.001p-value below 0.1% - probability of this happening by chance is less than 1 in 1,000. Extremely strong evidence the effect is real.). HIGH minus MEDIUM gap is also significant at t = 4.01 (p < 0.001). All three profitability deltas show the same monotone HIGH > MEDIUM > LOW ranking, reinforcing the ESG-performance link.
After their acquisitions, HIGH-tier acquirers improved every profitability ratio. LOW-tier acquirers went the opposite direction: ROA dropped 0.81 percentage points and ROE dropped 0.45. The HIGH minus LOW gap of +2.14 pp on ROA is the headline statistic of the entire study.
The mechanism is consistent with what the literature predicts. High-ESG firms enter deals with stronger stakeholder foundations - better governance, more disciplined capital allocation, lower employee attrition, more durable customer trust. Those features compound through the integration period. Low-ESG firms enter deals carrying the opposite baggage and their integration cost overruns show up directly in the ratios.
Each ratio is computed annually per firm from 2014 (the earliest pre-deal year) through 2026 (the latest post-deal year). The change between the two windows enters the M1–M4 regressions on the Regression Output page, where the HIP-tier dummy variables capture the differential improvement.
Because every firm contributes multiple observations (one per year of the panel), all standard errors in the regressions are HC3HC3 robust standard errors: a conservative way to measure uncertainty that does not overstate significance.-robust and clustered at the firm level - meaning correlated observations within the same firm don't inflate statistical significance.
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