Enhancing environmental sustainability through corporate governance: the merger and acquisition perspective

Background: Environmental sustainability may be perceived as conflicting with economic development. Economic activities such as mergers and acquisitions can contribute to resource allocation optimization, where corporate governance plays an important role in advancing environmental sustainability. Our study broadens the investigation of whether mergers and acquisitions are helpful for sustainable environmental development. We attempt to reveal the mechanism by which mergers and acquisitions affect sustainable development: namely, through corporate governance. Results: By employing panel data for Chinese listed companies, we reveal that mergers and acquisitions have a significant positive influence on environmental sustainability. In particular, the study documents a mediating effect of corporate governance. We argue that mergers and acquisitions can trigger company reorganizations and thus optimize firm structure, resulting in better corporate governance. This effect, in turn, can enhance company management in several aspects, including sustainable environmental development. Therefore, we conclude that the government can improve corporate governance by promoting board reorganizations via mergers and acquisitions, leading to better environmental sustainability. Conclusions: This paper can inspire future research avenues by shedding light on how economic development and environment sustainability can be harmonized through better corporate governance. It can also deliver research implications on corporate governance studies through mergers and acquisitions.