Does technological diversity in M&A networks improve ESG performance?

This paper identifies the effect of technological diversification in M&A networks on corporate ESG (Environmental, Social, and Governance) performance. Using hand-collected IPC patent data, we construct firm-level M&A network measures within a five-year rolling window. We document a robust inverted U-shaped relationship, implying that moderate diversification enhances ESG performance while excessive diversification is detrimental. To address endogeneity, we implement industry-year interaction effects, replace dependent variable, alteration of sample rolling period, and a heckman two-stage model. From the dual perspectives of internal governance and external responsibility, we uncover the intrinsic mechanisms involving agency costs and corporate social responsibility (CSR). Further analysis demonstrates that the ESG-driven effect of technological diversification in M&A networks is more pronounced in firms with high growth potential and superior internal control quality, and this effect is particularly significant in manufacturing industry. Our findings contribute to the applied M&A and innovation literature and providing actionable implications for optimizing M&A strategies.