The influence of exploratory versus exploitative acquisitions on innovation output in the biotechnology industry

Building on the observable trend toward increasing division of scientific labor in entrepreneurial ecosystems, we investigate the effects of different modes of implementation for external knowledge sourcing such as alliances and acquisitions. More specifically, by estimating a Poisson model based on 951 acquisitions by 209 companies from the biotechnology industry, the study analyzes two unique forms of external knowledge sourcing, namely alliances and acquisitions. In line with theoretical arguments, we find a saturating association of the exploration orientation of acquisitions with exploratory innovation output, while comprehensively controlling for prior exploratory and exploitative acquisitions and alliances, as well as other firm-level and acquisition-level determinants. We also find an inverted U-shaped association between the exploitation orientation of acquisitions and exploitative innovation output. These findings suggest that utilizing dissimilar knowledge sourced through acquisitions seems to have no inherent limitations; however, the inverted U-shaped relationship found for the exploitation orientation of acquisitions and exploitation innovation output indicates that utilizing similar knowledge has limitations and consequently an optimum level. We discuss the implications of this in the context of the knowledge spillover theory of entrepreneurship.