Many studies have explored the link between acquisitions and innovation. The empirical findings to date remain inconsistent. This dissertation is comprised of two studies that attempt to resolve some of these inconsistencies. The first study takes a knowledge-based view of innovation and attempts to establish how acquisitions influence innovation outcomes. The second study examines the influence of marketing and R&D capability fit between acquiring and target firms on these outcomes.
To empirically test these propositions, 657 U.S.-based acquisitions completed between January 1984 and December 2002 are examined. Data to support this research come from three databases. Acquisition data containing information on acquiring and target firms is sourced from the Thomson Financial SDC Platinum database. Firm-level financial data used to derive capability measures comes from Compustat. The National Bureau of Economic Research patent database is used to construct knowledge and innovation measures. The first study compares acquiring firms and non-acquiring firms to establish 1) the conditions by which firms complete acquisitions and 2) the influence acquisitions have on innovation. In the second study, four capability fit indices are established between acquiring firms and target firms along the marketing and R&D capability dimensions. These four fit indices are used to explain innovation outcomes of the acquiring firms.
The results from the two studies provide several insights. First, findings from the first study indicate one possible reason for acquisition is a lack of technical knowledge. Acquiring firms are able to increase their innovation quality following an acquisition. The examination of capability fit suggests that high marketing capability of acquiring firms combined with high R&D capability of target firms yields a high level of technical knowledge.