The Role of Target Pre-acquisition Relationships on Acquisition Likelihood and Invention Outcomes

Abstract

This thesis explores the role of inter-organisational relationships of firms, namely, corporate venture capital investments and alliances, in acquisitions and innovation performance. Drawing on signalling theory and a unique dataset of acquisitions of UK high technology firms, this work addresses three questions: (1) What is the influence of inter-organisational relationships of firms on the likelihood of being acquired? (2) What is the effect of inter-organisational relationships of firms on the post-acquisition innovation performance of acquired firms? and (3) What is the impact of selecting an acquisition target on the basis of the existence of inter-organisational relationships on the innovation performance of the merged (acquiring and acquired) firms? The thesis comprises of three studies. The first study examines the relationship between inter-organisational partnerships and acquisitions and identifies the boundary conditions that affect target firm selection. To predict choice of target firm, each acquired firm is paired with non-acquired firms using coarsened exact matching method and then a logit model is applied on the matched dataset. A longitudinal investigation of 2,302 acquired and non-acquired firms in the high technology sector of the U.K., during the period 2008 – 2016, reveals a significantly positive relationship between the two types of inter-organisational relationships examined and the acquisition likelihood. Further, as predicted, this relationship is stronger for start-up firms. However, contrary to my expectations, affiliation with high reputation partners weaken the effect of inter-organisational relationships on the acquisition likelihood. Taken together, these findings are consistent with the view that inter-organisational relationships are perceived by acquirers as signals of firm quality when seeking acquisition targets – particularly when their information disadvantage is greater. The second study explores the signalling value of the inter-organisational relationships of acquired firms after an acquisition. This study combines the matching methodology with a difference-in-difference-in-differences approach to observe the effect of an acquisition on innovation performance as a function of inter-organisational relationships of the targets. The results on a sample of 3,424 acquired and non-acquired high technology firms show a positive impact of inter-organisational relationships of acquired firms on their post-acquisition innovation performance as compared to acquired firms without inter-organisational relationships. Further, the third study evaluates the effect of target inter-organisational relationships on the combined (acquired and acquiring firms) innovation performance using a sample of 1,303 merged and non-merged pairs. The results indicate a decline in post-acquisition innovation performance of merged firms, whose targets are engaged in inter-firm ties, relative to their counterparts. This research contributes to the understanding of the signalling effect of inter- organisational relationships that can provide an information advantage in the M&A market and brings forward the challenges faced by acquirers in acquiring and redeploying inter-organisational relationships, while managing the combined innovation activity.

Date of Award	24 Jun 2020
Original language	English
Awarding Institution	University of Bath
Supervisor	Panos Desyllas (Supervisor)