Climate-related regulations have become increasingly prevalent in countries worldwide. However, due to the global public good nature of climate, it is unclear to what extent these regulations are enforced by individual countries and whether they influence key corporate decisions. We shed light on this issue by examing the impact of climate laws on the international market for corporate control. We find that foreign acquirers are significantly less likely to pursue targets in countries that have enacted climate laws. This effect is stronger when targets operate in industries more exposed to climate regulations and in countries with stricted legal enforcement, but is weaker for acquirers from countries that are more concerned about climate change or experienced climate disasters. Consistent with a selective enforcement mechanism, the political affinity between the acquirer and target countries attenuates the impact of climate regulations. Furthermore, cross-border deals feature smaller synergies, lower premiums, and less post-merger operating performance improvement after target countries pass climate laws. Deals announced shortly before the enactment of climate laws are more likely to be withdrawn.
