The effect of acquisitions on acquiring firm performance: Evidence from digital product and service industries.

摘要

Merger and Acquisitions (M&A) is an important means of integration of knowledge, technology, talent and product for firms seeking those capabilities from external resources. M&A among digital firms is particularly worth studying since those industries are extremely fast growing, hypercompetitive, and dynamic. In this study, I examine the effect of acquisition on digital firm performance in the form of product differentiation, innovation capability, and stock abnormal return. By using archival data of M&A, financial, and a unique 10-K textual analysis-based measure of product differentiation, I test the effect of completing significant acquisition on digital firms' firm performance using a difference-in-differences specification where a control group is matched using propensity score based on a variety of factors that are suggested to influence the M&A decision in the literature. I also study the heterogeneous effects of acquisition across different subgroups in the digital industry and other firm-, industry-level and M&A portfolio characteristics. I find that acquisition can cause higher level of production differentiation, however, this effect is only evident in the subsample of hardware manufacturers, and is stronger when firms make internal R&D investment to complement the acquisition. Only high Tobin's Q firms in hardware sector are found to perform better after M&A in terms of patent quantity, but not in terms of patent quality. Also I find that stock market investors generally react negatively to M&A behavior, however firm's I and M&A portfolio size can mitigate some of the negative impact, and investors' attitude toward M&A tend to change over time. For software firms, I find that M&A has no positive effect or even reversed impact on product differentiation and no positive effect on innovation capability and financial performance is found. Target age has been found to moderate the effect of M&A on product differentiation. Additional analyses are also conducted to examine differential effect of M&A during different time periods.