M&A and Innovation: The Role of Relatedness between Target and Acquirer

The number and value of mergers and acquisitions1 (M&As) have continued to increase over the last years, both in relative and absolute terms, mainly due to a series of technological, economic, and political changes ranging from the diffusion of Information and Communication Technologies (ICTs) to globalization of markets, liberalization, and privatization processes. In addition, as global competition intensifies, innovation has become a more crucial source of strategic competitive advantage. Within this context, over the last decades there has been an upsurge of interest among scholars on the importance of understanding the consequences of M&As on companies’ innovation strategies and performance (Ahuja and Katila, 2001; Capron, 1999; Hagedoorn and Duysters, 2000; Hall, 1990; Hitt et al., 1991). The results are often conflicting and fail to find any robust evidence (for an exhaustive survey, see Veugelers, 2006). These mixed findings are mainly due to the fact that the total effect of an M&A on different measures of innovation – inputs, outputs, and performance – can increase or decrease depending on the forces that dominate the M&A. Therefore, it is very important to identify specific characteristics of an M&A in order to analyze its relationship with the post-deal innovation activity of the merging firm. Furthermore, while initial conditions matter for the innovation outcome of the M&A, we also argue that the management response during the postacquisition integration will affect the final outcome of the M&A.