Business Strategy

Post-M&A Innovation in Indian firms: An Empirical Investigation

Article Details

Pub. Date	: June' 2021
Product Name	: The IUP Journal of Business Strategy
Product Type	: Article
Product Code	: IJBS10621
Author Name	: Sandeep Yadav
Availability	: YES
Subject/Domain	: Strategic Journals
Download Format	: PDF Format
No. of Pages	: 18

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Abstract

The purpose of this study is to explore the effect of Mergers and Acquisitions (M&A) on firm innovation. The author examines a sample of 85 domestic M&A deals by Indian firms from 2000 to 2015. The analysis of firm-level data suggests that M&A influences the innovation activities of firms. The results show that the higher relative absorptive capacity of the acquirer increases post-deal innovation. The size of the acquirer firm positively moderates the relationship between relative absorptive capacity and post-deal innovation performance. The deal between firms in the same industry increases post-deal innovation. This study takes Research and Development (R&D) intensity (ratio of R&D expenditure to total sales) as a measure of firm innovation.

Description

In Mergers and Acquisitions (M&A hereafter), independent firms with their governance structure combine their operation into a single new entity (de Man and Duysters, 2005), by allowing the acquiring firms to change their resources, routines, and structures (Choi and McNamara, 2018). Traditionally, M&A has motives like market entry, growth of the firm, improved efficiency, and reduction of risk by diversification (Hitt et al., 1991). In today's radically changing economy, M&A have focused on absorbing complementary external technology to compete successfully (de Man and Duysters, 2005). Acquisition of external knowledge as a substitute for internal knowledge development has become an important motive of M&A due to rapid technological changes (Chakrabarti et al., 1994). Time compression diseconomies of internal innovation make technological acquisition a popular strategy (Sears, 2018). Firms rely more on external knowledge sourcing due to the high complexity of internal innovation (Cefis and Marsili, 2015). Firms have used various modes to access external knowledge such as licensing, company acquisition, Research and Development (R&D) outsourcing, researcher hiring (Cockburn and Henderson, 2003). M&A is preferred for the transfer of knowledge between the acquirer and target firms when other collaboration modes of knowledge are not successful (Lehto and Lehtoranta, 2006). M&A has been an attractive model for technology diversification and strengthening existing competencies by filling the gaps in existing technology lines and using assets and capabilities of the acquired firm (Ahuja and Katila, 2001; Cassiman and Veugelers, 2006; and Cloodt et al., 2006). M&A allows firms with complementary knowledge to combine their specific