Quantity at expense of quality? Measuring the effects of 'successful' M&A on innovation performance

Marku, E.

;Di Guardo, M. C.;Harrigan, K. R.

2020-01-01

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Abstract

Objectives. Taking the literature on innovation and mergers and acquisitions (M&A) as a basis, this paper aims at investigating the effect of M&A on innovation quality which includes the invention’s technological impact, originality, and generality. More specifically, we analyze the directionality of the relationship between quality and quality of postacquisition inventive process outcome. Methodology. Using data from a sample of 330 M&A occurred in the U.S. communication services sector and applying the traditional metric of success based on changes in inventive outputs (patent counts), we adopt a quasiexperimental approach using the matching estimators and propensity score methods to better assess the effects of successful M&A on three different dimensions of innovation quality. Findings. The results obtained show that firms involved in successful acquisitions actually decreased the average quality of their inventive outputs. Our findings offer new insights concerning the dynamics that may affect firms’ innovation performance after an M&A transaction. Research limits. The main limitation regards the use of patents as a measure of innovation performance, as some inventions might not be patented. Moreover, we focus only on one industry, hence, our results may lack generalizability. Practical implications. This paper offers several recommendations to help managers when defining the postacquisition innovation strategy. Originality of the study. This study provides a specific understanding of the relationship between quantity and quality of innovation process output and raises questions on the measurement of innovation.