Absorptive Capacity and Post-Acquisition Inventor Productivity

Technologically motivated firm acquisitions often fail in the sense that post-merger innovation performance declines. One reason has been identified as a temporary shift of managerial attention towards the firm acquisition. Decision making on routine technological matters are delayed and managerial as well as financial efforts being supplied to day-to-day operations - even in the technological core of the company - are reduced. The effect is amplified if post merger integration suffers from insufficient ex-ante planning and inabilities to cope with differences in corporate culture. In response, the productivity of the acquired inventors is low in the immediate post-merger years. A key managerial interest lies in identifying factors that foster integration of acquired inventors and facilitate the exploitation of the new knowledge they introduce to the acquiring firm. A low productivity of newly acquired inventors indicates barriers to the exploitation of the acquired knowledge. This paper investigates the role of acquiring companies' absorptive capacity for postmerger patent productivity of acquired inventors. Absorptive capacity - defined as the firms’ "ability to recognize the value of new, external knowledge, assimilate it and apply it to commercial ends" - should help acquiring firms recognizing valuable, new ideas and practices introduced by the acquired inventors. Further, the implementation of new knowledge should be easier in firms with a distinct absorptive capacity since the required, flexible infrastructure for the adaption of new external ideas should be in place. The acquiring firms' ability to recognize and utilize the new inventors' knowledge should be visible in the acquired inventors' post-merger patent productivity. This article empirically tests the effect of acquiring firms’ absorptive capacity on post-merger patent productivity of the acquired inventive labor force. The analysis is based on a sample of 544 inventors employed by European firms that were subject to a merger or acquisition in the years 2000/ 2001. Results from a sample selection model that accounts for possible departure of inventors after firm acquisition show that the productivity of acquired inventors is significantly higher within acquiring firms with a distinct absorptive capacity than within other firms. In firms with significant absorptive capacity effective communication and integration schemes to integrate externally developed knowledge and new ideas have evolved over time, facilitating the recognition, integration and exploitation of valuable external ideas and knowledge. Hence, acquiring firms with a distinct absorptive capacity have to take fewer means than others for achieving the same productivity level of the acquired inventors in the immediate post-merger years.

Hussinger, Katrin (2010), Absorptive Capacity and Post-Acquisition Inventor Productivity, ZEW Discussion Paper No. 10-066, Mannheim, published in: Journal of Technology Transfer.