The effects of green innovation performance feedback on merger and acquisition location choices and innovation outcomes: Evidence from emerging economy firms

Firms in emerging economies often face a trade-off between maintaining short-term competitiveness and pursuing long-term green innovation. It remains unclear whether firms with existing green innovation advantages are more likely to undergo transformation, or whether underperforming firms face stronger incentives. While the behavioral theory of the firm provides a useful lens to understand how performance feedback on green innovation guides strategic decisions, these questions remain largely overlooked. Using a dataset of 4753 M&A transactions by Chinese acquirers from 2003 to 2023, we examine how pre-deal green innovation performance influences M&A location choices and how these choices affect post-deal innovation outcomes. We find three main results. First, underperformance in green innovation relative to peers drives acquirers to select emerging economy targets, while overperformance - whether relative to peers or to their own past performance - leads to only weak and unstable tendencies to choose developed economies. Second, acquiring developed economy targets improves post-M&A green innovation performance in both the short and long term, but this effect is consistent only among acquirers with underperformance relative to peers. Third, state-owned acquirers and those in highly polluting industries are more likely to undertake M&As for compliance reasons and struggle to realize innovation benefits. Our findings suggest that even underperforming firms can improve through proactive green innovation efforts, while passive compliance fails to generate lasting gains.