The Complementarity Effects of M&A Diversification and Knowledge Recombination on Innovation

Marku, Elona

;Di Guardo, Maria Chiara

;Harrigan, Kathryn Rudie

2017-01-01

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Abstract

Based on the Resource Based View and the Dynamic Capability View, the present study aims to investigate the effect of M&A diversification and the role of the acquirer’s capabilities to combine diverse, novel, and distant knowledge on its post-acquisition innovation performance. Moreover, we explore the complementarity effect between M&A diversification and knowledge recombination on the acquirer’s post-acquisition innovation performance. We test our hypotheses on a sample of 1,980 transactions completed in the U.S. electronics industry between 1998 and 2005. We also account for the possibility of unobserved self-selection into diversified acquisitions by using a quasi-experimental approach and by introducing a new instrumental variable. Interestingly, our findings show that while M&A diversification negatively affects innovation performance,there is a complementarity positive effect between M&A diversification and the capabilities of the acquirer to recombine knowledge deriving from distant technological domains.