Can digital M&A reduce the stock price crash risk?

Abstract

With the rapid development of the digital economy, digital mergers and acquisitions (M&A) have become essential means for enterprises to acquire digital technologies and accelerate their digital transformation. This paper examines the impact of digital M&A on stock price crash risk using a sample of M&A transactions of China A‐share listed companies from 2010 to 2021. The results show that digital M&A can reduce stock price crash risk after M&A. Further discussions reveal that compared to non‐digital M&A, digital M&A has a better market effect, and the target firms of digital M&A generally are in different industries from the acquirers, have relatively low registered capital, have a shorter registration time, and have better financial performance. Mechanism tests indicate that during the transaction, digital M&A increases the probability of signing earnout contracts and reduces the cash payment ratio. After the transaction, digital M&A increases research and development (R&D) investment and improves R&D investment efficiency, ultimately reducing stock price crash risk. Cross‐sectional tests suggest that in situations with intense market competition, lower digitalization level of the acquirers, and higher business similarity between the acquirer and the target firm, digital M&A is more effective in reducing stock price crash risk. The findings enrich the research on the operational mechanisms and economic consequences of digital M&A, providing theoretical references for regulatory authorities to optimise M&A regulatory policies and for enterprises to assess the benefits and risks of digital M&A.