Regression Analysis
Three OLS specifications examining HIP score impact on cumulative abnormal returns
Model 3 with management variables explains the most variation (R² = 0.056), suggesting management quality matters more than ESG scores alone.
The Wealth pillar has a surprising negative effect on returns (β = -0.275, p < 0.001), suggesting these companies may be overvalued.
ManagementPractices is the single strongest predictor (β = 0.652, p < 0.001) - operational quality drives post-acquisition success.
Single-factor model testing overall HIP Rating impact on post-acquisition returns
R-squared
0.045
F-stat
8.92
CAR = α + β₁(HIPRating) + ε
The overall HIP (Human Impact + Profit) score, ranging from 0 to 100. It combines environmental, social, and governance factors into a single measure of corporate responsibility.
Coefficient Estimates
Detailed Results
| Variable | Beta | SE | t-stat | Sig. | Plain English |
|---|---|---|---|---|---|
| Intercept | -0.032 | 0.018 | -1.78 | n.s. | Baseline return when all predictors are zero |
| HIPRating | 0.089 | 0.030 | 2.97 | p<0.01 | For each 1-point increase in HIP score, returns increase by 8.9 percentage points |
Disaggregated model examining individual contribution of each HIP pillar
R-squared
0.029
F-stat
4.51
CAR = α + β₁(Health) + β₂(Wealth) + β₃(Earth) + β₄(Equality) + β₅(Trust) + ε
Companies with higher Wealth pillar scores (financial inclusion, fair wages) actually have worse post-acquisition returns. This may be because the market already prices in these factors, leading to overvaluation.
Coefficient Estimates
Detailed Results
| Variable | Beta | SE | t-stat | Sig. | Plain English |
|---|---|---|---|---|---|
| Intercept | -0.032 | 0.018 | -1.78 | n.s. | Baseline return when all predictors are zero |
| Health | -0.036 | 0.037 | -0.95 | n.s. | Higher Health pillar scores are associated with 3.6pp lower returns |
| Wealth | -0.275 | 0.065 | -4.25 | p<0.001 | Higher Wealth pillar scores are associated with 27.5pp lower returns |
| Earth | 0.011 | 0.043 | 0.25 | n.s. | Higher Earth pillar scores are associated with 1.1pp higher returns |
| Equality | 0.033 | 0.055 | 0.59 | n.s. | Higher Equality pillar scores are associated with 3.3pp higher returns |
| Trust | 0.084 | 0.080 | 1.05 | n.s. | Higher Trust pillar scores are associated with 8.4pp higher returns |
Extended model incorporating governance and management quality indicators
R-squared
0.056
F-stat
8.96
CAR = α + β₁(MgmtPractices) + β₂(Accountability) + ε
When we test what actually drives post-acquisition returns, management quality (how well a company is run) matters more than any ESG pillar score. Good management, not ESG labels, predicts success.
Coefficient Estimates
Detailed Results
| Variable | Beta | SE | t-stat | Sig. | Plain English |
|---|---|---|---|---|---|
| Intercept | -0.089 | 0.025 | -3.56 | p<0.001 | Baseline return when all predictors are zero |
| ManagementPractices | 0.652 | 0.111 | 5.88 | p<0.001 | Better management practices are associated with 65.2pp higher returns |
| Accountability | -0.478 | 0.085 | -5.61 | p<0.001 | Higher accountability scores are associated with 47.8pp lower returns |
Model progression: Moving from Model 1 to Model 3 increases R² from 0.045 to 0.056, with management variables providing the strongest explanatory power.
Management dominance: ManagementPractices (β=0.652) is the strongest predictor across all models, suggesting operational quality matters far more than ESG scores for post-acquisition success.
Wealth paradox: The Wealth pillar has a significant negative coefficient (β=-0.275, p<0.001), indicating that companies scoring highly on financial inclusion and fair wages may already be priced at a premium, leading to lower post-acquisition returns.