Industry Relatedness and Post-Acquisition Innovative Performance

This paper examines how characteristics of acquiring and acquired firms influence the curvilinear (inverted U-shaped) relationship between relatedness and post-acquisition innovative performance. Using a relatedness index based on industry co-occurrence in the Dutch acquisition market, we test for variations in the tipping point and curvature of the relationship. In our sample of 1,736 acquisitions, we find that acquirer’s internal R&D and acquisition experience, and the small size of acquired firms, help to reach a balance between exploration of novelty and exploitation of synergies in unrelated acquisitions, and to achieve higher post-acquisition performance. However, while the acquirer’s R&D increases flexibility in the acquisition process to deviations from an optimal level of relatedness, acquisition experience may enhance rigidities.

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