Innovation Specificity

Abstract

We study the specificity of corporate innovation. Process patents are more specific to the inventing firm. They tend to arise at higher-cost firms, they are more likely to cite past patents of the focal firm and be undertaken by inventors with more focal-firm patenting experience. High process-patent-oriented firms are also less likely to be acquired, but this effect is reversed when there is strong textual overlap between process patent descriptions and the acquirer’s product descriptions. Cost-reduction synergies are greater in such cases as well. Withdrawn attempts to acquire process-oriented targets are followed by increased bidder internal process patenting.

Keywords: Innovation, Mergers and acquisitions, Patents, Specificity, Internal knowledge

JEL Classification: G30, G34, O3