Unravelling the link between technological M&A and innovation performance using the concept of relative absorptive capacity

Technological merger and acquisition (M&A) has become an increasingly popular mode ofinnovation for firms. We investigate the determinants of innovation creation throughtechnological M&As. Based on the concept of relative absorptive capacity, the studyexamines how the acquiring firm absorbs and assimilates the knowledge of the acquiredfirm and creates innovation. Specifically, the technological M&As are examined bypresenting dyadic perspective variables, including technological similarity and technologicaldigestibility which affect the assimilation, transformation, and exploitation processes of theabsorptive capacity. We additionally investigate the role of M&A experience as a moderatorof dyadic characteristics and innovation performance of technological M&As. Two hundredand twelve cases of technological M&As in the biopharmaceutical industry from 1993 to2007 are investigated using zero-inflated negative binomial regression and negativebinomial regression. The findings confirm a positive effect of acquiring small firms having amodest level of similar knowledge on post-M&A innovation performance. Moreover, thisstudy highlights the importance of the dyadic perspective in advancing the understanding oftechnological M&A.