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

Drawing on signaling theory, we explored whether acquirers taking over firms with inter-organizational relationships – that is, corporate venture capital investments and alliances – obtain an information advantage in the M&A market. We investigated the effect of target relationships on innovation performance using a longitudinal study on UK technology acquisitions. Although, we found that target relationships are associated with a higher post-acquisition innovation performance of the acquired units, we also estimated a significant decline in the combined firms’ post-acquisition innovation performance. Our study contributes to the M&A literature by revealing that, despite the valuable role of target relationships in target selection, such relationships make the integration of targets and their relationships more challenging for acquirers.