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We examine the motivation for green mergers and acquisitions (green M&amp;As) in heavily polluting firms by considering the relationship between investors’ green M&amp;A preferences and managerial decisions. Using data on green M&amp;As conducted by heavily polluting firms in China for the 2008–2019 period, we construct an index of investors’ green M&amp;A preferences, and find that when investors give a higher (lower) premium to green M&amp;As, heavily polluting firms prefer to implement (avoid) green M&amp;As. The relationship is time-varying, consistent with the catering effect. Simultaneously, when compared with non-SOEs, SOEs have a stronger green M&amp;A catering effect. Finally, we find that managers can use investor preference as a substitute for media supervision to promote green M&amp;A of heavily polluting firms.

The Catering Effect of Green Mergers and Acquisitions in Heavy Pollution Industries