Horizontal M&A and Firm Innovation: Contingency Roles of Collaboration
February 1, 2019
Isenberg School of Management
UMass Amherst Campus
Horizontal M&A and Firm Innovation: Contingency Roles of Collaboration and Knowledge Network Embeddedness
This study unpacks how multiple network embeddedness of technological firms may change the effects of horizontal merger and acquisition (M&A) on firm innovation performance. Horizontal M&A is associated with knowledge- and resource-based trade-offs and thus exerts double-edged sword impacts on firm innovation: on one hand, the focal firm may gain innovation competence through knowledge absorption and complementary resources; on the other hand, close interactions with horizontal entities—including competitors—may elevate risks of knowledge leakage and imitation. Through external information searches and strategic alliances, technological firms are embedded in a knowledge network and a collaboration network, and the extents to which horizontal M&A enhances or impedes firm innovation can depend on firm network positioning. To test network contingency hypotheses, I conduct empirical analysis using data on strategic alliances and M&A, patent applications and citations, and annual reports of public firms in the United States. I report findings on the moderation effects of firm network embeddedness: knowledge network eigenvector centrality and collaboration network betweenness centrality can augment the innovation enhancement of horizontal M&A, but collaboration network structural hole spanning can exacerbate the negative trade-off.