The oil and gas (O&G) industry is under increasing pressure to decarbonize and adopt sustainable practices. While some firms are transitioning toward renewable energy, many continue to expand their traditional O&G operations. This study examines how financial markets perceive the value creation potential of business-as-usual mergers and acquisitions (M&As) by the world’s largest O&G companies from 2000 to 2021. Using an event study methodology, we focus on the role of home-country environmental policy stringency (EPS) in shaping market reactions. Our findings reveal that higher EPS in the acquirer’s home country is associated with a greater perceived loss in shareholder value upon the announcement of traditional O&G M&A deals, suggesting that EPS signals significant operational and financial risks related to hydrocarbon investments. However, when these deals are cross-border, the adverse impact of the acquirer’s home-market EPS diminishes, indicating that expanding beyond domestic markets may help O&G firms mitigate the financial consequences of stricter environmental regulations.
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