Merging innovation and responsibility: the role of digital M&A in shaping ESG performance

Abstract In the context of digitalization, firms can pursue either internal or external digitization through digital mergers and acquisitions (M&A). While recent studies on digital M&A have extensively examined the effects of such transactions on productivity, innovation, and market value, limited attention has been given to their impact on sustainability performance. Although the relationship between digitization and sustainability performance is relatively clear, the most effective approach to achieving sustainable digitalization remains uncertain. To address this gap, this study adopts a quantitative approach, employing a series of fixed-effects regression models on panel data from a sample of 560 manufacturing firms worldwide. To ensure comparability, Propensity Score Matching (PSM) is applied to distinguish the control group from the treatment group, which consists of companies that engaged in digital M&A between 2017 and 2021. The findings indicate that firms undertaking digital M&A experience a significant and negative impact on ESG performance compared to those not involved in such transactions. This outcome is primarily attributed to the complexities associated with post-M&A integration. Given these results, a strategic approach that integrates digitalization with sustainability principles is recommended to mitigate these challenges while maintaining financial performance.