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Building an innovation base: exploring the role of acquisition behavior

Abstract

Innovation serves as a foundation for sustainable competitive advantage. Therefore, it is no surprise that firms seek to build an innovation base—a reservoir of inventions, ideas, and discoveries that serve as a platform for their innovation efforts. One approach for building an innovation base is acquisitions, though extant research reveals an equivocal verdict on whether acquisitions influence post-acquisition inventions. In this research, the authors focus on type of acquisition, acquisition behavior over time, and invention characteristics to investigate how acquisition behavior influences post-acquisition inventions. Analysis of 352 firms across five industries and 17 years reveals that firms who make acquisitions produce a stronger innovation base than those who make no acquisitions. Moreover, comparing effects across vertical and horizontal acquisitions, results indicate that the acquiring firm’s knowledge breadth plays an important role in determining which type of acquisition behavior generates the strongest influence on a firm’s innovation base.

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Notes

  1. Although firms may pursue acquisitions for various reasons, industry research reveals that pursuit of growth and economies of scale are key drivers of M&A activity across the industries in our sample (e.g., Arensman 2007; Deloitte 2011; Maris 2012; PricewaterhouseCoopers 2011). While innovation plays an enabling role in firm growth and economies of scale, and firms may be specifically seeking innovation goals from their acquisitions, it is important to point out that regardless of the motivation for the acquisition, the acquiring firm gains the target firm’s resources during the acquisition.

  2. We recognize that it is possible for firms following non-acquisition behavior to access external knowledge through other means. Our focus enables a direct comparison between acquisitions and no acquisitions. Further, inclusion of firms following non-acquisition behavior offers us a base against which to compare the effects of acquisition behavior on inventions.

  3. It is possible that engaging in unrelated horizontal acquisitions will strain the firm’s resources to decrease the value of such a mixed acquisition approach. However, a vast majority of firms do not follow unrelated horizontal acquisition behavior (which was confirmed in our sample).

  4. We performed a robustness check to determine whether results would differ if we removed the unrelated horizontal acquisitions from the analysis and found similar results.

  5. We performed a robustness check on this proportion level, which we discuss in the Ancillary Analysis sub-section.

  6. Estimation with a three-year post-acquisition period shows similar results, as discussed in the Ancillary Analysis sub-section and reported in Appendix A.

  7. Analysis with all registered patents revealed similar results.

  8. For example, one of Pfizer’s patents (patent #7,482,022) is entitled, “Palatable chewable tablet”. In the patent description, the Field of Invention (as stated within the patent documentation) is as follows: “The present invention relates to an oral chewable tablet, in particular, a chewable tablet that provides a palatable taste to mask the bitter taste of a pharmaceutical agent contained therein.” In the design and development of this invention, the two inventors reference 9 other U.S. patents (see www.uspto.gov). Therefore, this patent contains 9 backward citations. However, this patent has not yet been cited by any other patents, and therefore would receive 0 forward citations.

  9. Poisson models are also the most appropriate for our analysis since they generate estimates that are consistent and asymptotically normal (Wooldridge 2001).

  10. In our coding approach, we created two additional groups to account for firms that only engaged in a single acquisition.

  11. We also examined our models using number of acquisitions rather than the contrast between acquisition and non-acquisition behavior. Results revealed a positive effect of total acquisitions when regressed upon invention importance (β = 69.83, p < 0.01) and when regressed upon invention domain (β = 185.09, p < 0.01).

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Acknowledgements

The authors appreciate the valuable comments from Frank Acito, Jonlee Andrews, Aric Rindfleisch, and Demetrios Vakratsas on prior versions of this manuscript. In addition, the authors appreciate the financial support of the Social Sciences and Humanities Research Council of Canada (SSHRC) awarded to the first author and of Whirlpool Corporation awarded to the second author. The authors also thank Ayushman Dutta, Julia Hoenig Ferguson, Sowmya Gogineni, Rahul Gupta, Kelly Roses, Caroline Roux, James Sturgeon, Judy Xian, and Jason Yau for their valuable research support.

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Appendix A

Appendix A

Table 5 Ancillary analysis results

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Mishra, S., Slotegraaf, R.J. Building an innovation base: exploring the role of acquisition behavior. J. of the Acad. Mark. Sci. 41, 705–721 (2013). https://doi.org/10.1007/s11747-013-0329-6

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Keywords

  • Vertical acquisitions
  • Horizontal acquisitions
  • Product inventions
  • Knowledge breadth