The Impact of ESG Practices on the Valuation of Related Party M&A Assets: The Moderating Role of Digital Economy

Abstract

The overvaluation of merger and acquisition (M&A) assets can lead to a decline in the performance of listed firms, an increase in the risk of goodwill impairment, and harm to the rights of minority shareholders, as well as to the sustainable development of firms. Based on stakeholder theory, this article constructs models to examine the impact of environmental, social, and governance (ESG) practices on the valuation of related party M&A assets and conducts an empirical analysis. We find that ESG practices significantly inhibit the overvaluation of related party M&A assets, and the digital economy can enhance this negative relationship. Mechanism analysis shows that this negative relationship is mediated through setting up stock performance compensation, reducing performance commitment growth rate, selecting reputable asset appraisal institutions and financial advisors, increasing analyst following and social media discussions, and reducing agency costs. Heterogeneity analysis shows that the inhibitory effect of ESG practices on the overvaluation of related party M&A assets is more obvious in non-horizontal M&A and non-state-owned enterprises. Furthermore, ESG practices can alleviate the stock price crash risk by reducing the overvaluation of related party M&A assets. The research conclusions provide a reference for ESG practices to better serve M&A activities and alleviate asset overvaluation in the digital economy era.