M&A and the profile of inventive activity

This article examines the effect of mergers and acquisitions (M&A) on the profile of merging firms’ inventive activity. The authors conceive of the inventive process as a recombinant search, whose outcome can be characterized along two complementary dimensions, which define its profile: its depth of impact on subsequent inventions, and its breadth of impact across different scientific domains. The profile of firms’ inventive activity depends on two main factors: the resources available to be recombined and the organizational incentives that guide the recombination process. In turn, these factors significantly depend on the upstream, technological resources available and on firms’ downstream, product-market related assets. Importantly, both of these factors may change in the aftermath of M&A, as their specific institutional features facilitate the exchange and redeployment of upstream and downstream resources. The authors then discuss how variations in the profile of firms’ inventive activity in the aftermath of an M&A reflect the diversity of upstream and downstream resources redeployed by the M&A deal. They test their hypotheses with a panel of firms from the US medical devices and photographic equipment industry. The study finds that diversity in merging firms’ downstream resources exerts a positive impact on post-acquisition profile of inventive activities, whereas diversity in knowledge bases does not seem to exert a significant direct effect on the two qualitative dimensions of inventive activity considered. Yet, technological diversity displays a positive effect in deals characterized by high market relatedness.