How Target Inter-organizational Relationships Influence Innovation in Technology Acquisitions: A Signaling Perspective

We ask whether acquirers taking over firms with inter-organizational relationships - that is, corporate venture capital investments and alliances - can obtain an information advantage in the M&A market. Drawing on signaling theory, we predict that an acquisition approach accounting for target relationships should lead to superior post-acquisition innovation performance. We conduct a longitudinal study on 442 UK technology acquisitions during the period 2008 - 2016. We find a positive impact of the relationships of the acquired firms on their innovation performance as compared to acquired firms without such relationships. Further, we investigate the effect of target relationships on the combined (acquired and acquiring) firm's innovation performance. The results indicate a drop in post-acquisition innovation performance of merged firms whose targets had relationships relative to other business combinations. Our study contributes to the understanding of the signaling value of target relationships, but also highlights the challenges faced by acquirers in inheriting and integrating target relationships.