Sourcing Technological Knowledge Through Corporate Acquisition: Evidence from an International Sample of High Technology Firms

Abstract

We investigate the prevalence of the motive to source technological knowledge externally through corporate acquisition. Drawing on make-or-buy and organizational learning theories, we infer the implications of this explanation for the acquirers’ pre-acquisition innovative characteristics. Using an international sample of 6106 high technology acquisitions during 1984-2000, we assess the contribution of innovative characteristics to the acquisition likelihood. For firms acquiring small private firms and former subsidiaries – but not public targets – the evidence is consistent with three propositions: (1) A firm’s commitment to internal R&D is negatively affected by the decision to acquire; (2) Low R&D productivity increases the likelihood of acquisition; (3) A large knowledge stock predisposes firms to acquire because they perceive they are capable of selecting and absorbing targets. We conclude that acquisitions of small private firms and former subsidiaries are a viable R&D strategy to explore a range of potential future innovation trajectories for large public firms.

Keywords: Mergers and acquisitions, acquisition likelihood, R&D, patents

JEL Classification: G34, O30, L20