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Digital transformation and corporate mergers and acquisitions: Evidence and mechanism in China

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  • Li, Chengming
  • Wang, Hanyang
  • Zhang, Changyun

Abstract

This paper examines whether digital transformation facilitates corporate mergers and acquisitions(M&A) and explores total factor productivity (TFP) as a mechanism. Using a panel of Chinese A-share listed firms from 2009 to 2023, this research employs multiple identification strategies—including synthetic difference-in-differences and first-difference to address endogenous concerns. The finding shows that digital transformation significantly increases M&A activity, with TFP serving as a key transmission channel. The effect is particularly pronounced for firms with substantial state ownership and in regions and industries with higher state-owned enterprise (SOE) prevalence. This research further finds that digital transformation shapes deal structure by increasing the likelihood of cash payments, reflecting improved financial flexibility. However, post-merger performance analysis indicates that digital transformation temporarily reduces firm performance, as reflected in lower ROA and cash flow within two to three years after acquisitions. Overall, the evidence highlights the role of digital transformation in shaping M&A outcomes.

Suggested Citation

  • Li, Chengming & Wang, Hanyang & Zhang, Changyun, 2026. "Digital transformation and corporate mergers and acquisitions: Evidence and mechanism in China," Pacific-Basin Finance Journal, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:pacfin:v:95:y:2026:i:c:s0927538x25003051
    DOI: 10.1016/j.pacfin.2025.102968
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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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