Master Thesis
Empirical analysis of the influence of acquisitions on the knowledge base of the acquired firm.
Selling your firm to improve performance. An empirical analysis
of the effects of acquisition.
By Rick Mensink
S2276569 Student MSc BA SIM
University of Groningen Faculty of Economics and Business
August 2017
Supervisor: dr. W.W.M.E Schoenmakers Co-assessor: A.A. Oleksiak
2
Abstract
3
Table of contents
Abstract ... 2
Introduction ... 4
Literature review ... 7
Mergers and acquisitions ... 7
Market Power theory ... 8
Innovation and resources ... 8
Knowledge breadth or depth ... 9
4
Introduction
The topic of mergers and acquisitions has been widely researched in academic literature. It has considered questions relating to the performance outcomes of mergers and acquisitions and what sort of profits can be generated from mergers and acquisitions (Weitzel & McCarthy, 2011). Although mergers and acquisitions are such a widely researched topic, most of the research has focused on the motives for the acquiring company (Sharma, 2016).
On the one side there are the value-creating merger and acquisition theories (Weitzel & McCarthy, 2011). These mergers are motivated by synergies that occur between acquiring and acquired firm, that increase the value of each firm (Hitt et al., 2001). On the other hand there are the value-destroying theories (Weitzel & McCarthy, 2011). These theories suggest that mergers and acquisition have at best ‘inconclusive’ and at worst ‘systematic detrimental’ impact on the performance of firms (Dickerson et al., 1997).
The motivations to do a merger or acquisition come from the value creating theories. There are roughly three different categories with motivations for a merger or acquisition. The first motivation is to create efficiencies. Efficiencies exist when a merger creates synergies that are beneficial for both parties (Weitzel & McCarthy, 2011). The second motivation is to create market power. Market power can be created by scarce resources that create allocative synergies. These synergies enable the firm to charge higher prices and appropriate more from consumers (Weitzel & McCarthy, 2011). The third motivation is to create corporate control. In this case, a management acquires another underperforming firm and removes its management, so that it can increase the performance (Weitzel & McCarthy, 2011).
As mentioned before, most of the research has addressed the side of the acquiring company (Sharma, 2016). Little attention has been paid to the role of the acquired company, while especially to create high class scarce resources, their innovation policy after the acquisition is very important for both firms (Öberg & Leminen, 2017). The innovation policy is thus important for mergers and acquisition that try to improve the market power of the firm. Therefore in this research, the innovation of the acquired firm is examined, based on the market power theory of Chatterjee (1986).
The market power theory was introduced by Chatterjee in 1986. Market power theory explains how firms try to increase their market power through mergers and acquisitions. It explains the different classes of resources that create economic value for the firm when they do an acquisition. The classes can be divided in three different categories. “Collusive synergy represents the class of scarce resources
5
that leads to reductions in the cost of capital” (Chatterjee, 1986 pp. 121). He finds that collusive synergy
has the highest effect on value creation (Chatterjee, 1986).
Despite the fact that the theory of market power is over 30 years old, it still gives no conclusive evidence of the results of mergers and acquisitions from the perspective of the acquired firm. The results from the perspective of the acquiring firm are discussed in Chatterjee (1986). There is no information from the perspective of the acquired firm, but he argues that their win equals the losses of their rival firms. He argues that both firms can benefit equally from the synergies unless one of the two firms has more bargaining power, for example because the resources of one firm are more critical for the success of the merger or acquisition. Nevertheless, there is no empirical evidence that examines the effects of an acquisition from the perspective of the acquired firm.
The need for post-acquisition integration is determined by the objectives that the acquiring firm has with the acquisition. If the goal is to create operating efficiencies and economies of scale, high levels of integration might be needed. If the acquisition is to improve price-earnings ratio or sales growth, little or no integration is needed (Datta, 1991). If low integration is needed, it implies that the acquired firm keeps acting under its own identity and therefore it determines its own way to innovate. Managers then have to determine what goals they want to strive for, whether they want to deepen or broaden their knowledge determines the innovation policy of the firm (Van Oudheusden et al., 2015). To connect this to the market power theory of Chatterjee (1986), the innovation policy of the acquired firm determines what kind of scarce resources the acquiring firm can use from the acquired firm. The acquiring firm might be able to get more market power thanks to the knowledge that is created in the acquired firm. Therefore it is important to understand in what ways the acquired firm will innovate.
Bigger firms can innovate by expanding their knowledge to other domains and creating new business units in these domains (Golembiewski, 1965). If the cost to create the knowledge themselves are too high, they will acquire it externally (Oxley, 1999). This means that managers of bigger firms have probably more mergers and acquisitions that they have to manage, therefore it becomes harder to them to focus their attention on one single acquisition. To understand what kind of innovation policy this acquired firm then will display is crucial for the managers, since it determines how big their benefits from potential synergies will become (Chatterjee, 1986).
Once a firm is acquired while holding its own identity, it has to determine its innovation policy (Van Oudheusden et al., 2015). When the acquired firm focusses their innovation on the part of their firm which creates the complementary resources for the acquiring firm, complementarity specialization occurs (Kavusan et al., 2016). According to Grant (1997), “increased depth of knowledge normally
6 complementary to each other, therefore the acquiring firm has to determine whether the firm becomes more specialised or more diverse. The management has to determine what kind of knowledge the firm wants to obtain and it has to evaluate what effects this will have on creating economic value (Grant, 1997). Although this strategic decision has a great influence on the success of the acquisition, the perspective of the acquired firm has gained too little attention in scientific research (Öberg & Leminen, 2017).
A gap in the literature thus exists of the post-acquisition effects for the acquired firm. This research aims to fill in this gap, by empirically testing post-acquisition innovative behaviour of the acquired firm. We will test this behaviour by using the knowledge-based view theory (Grant, 1997). The knowledge-based view builds on the resource-based view theory from Barney (1991). Barney describes that in order to create a sustainable competitive advantage, a resource must be valuable, rare, imperfectly imitable and non-substitutable (Barney, 1991). Grant (1997) builds on this theory by identifying knowledge as the most crucial resource that a firm can possess. According to Grant (1997), “knowledge is the
overwhelmingly important productive resource in terms of its contribution to value added and its strategic significance” (Grant, 1997 p.451).
By addressing this literature gap, this research aims to add to the market power theory, by empirically testing the results of the innovative performance of the acquired firms. The current literature field has a lot of empirical evidence for the acquiring companies, but empirical evidence is missing for acquired firms. This research will contribute to the theory by empirically testing the results of the innovative performance of the acquired firms. This will give a better understanding of the post-acquisition impact on the acquired firm. For managers these insights will be useful to determine their strategies post-acquisition. Both the acquiring and the acquired firm benefit from understanding what the best strategy is to strive for. The managers of acquiring firms that have a lot of acquired firms in their portfolio can make a better decision of which firms to acquire or make a better judgement how to influence the innovation policy of the acquired firm based on these results. At the same time, managers of acquired firms can make a better decision what kind of strategy they should follow when the acquisition of their firm is completed.
Based on the literature gap as is identified in the introduction, the following research questions arises. The main goal of this study is to empirically test the relationship between the acquisition of the firm and the innovative performance of the firm, and the influence the innovation performance after the acquisition has on the economic value creation. Therefore our research questions will be:
7
RQ2: What is the relationship between the innovative performance of the acquired firm after the acquisition and its economic value creation?
Literature review
Mergers and acquisitions
In order to gain more knowledge, firms can externally acquire knowledge (Marsillac & Ying, 2015). In a merger, two firms merge together into one new firm with an own identity and a common goal. In an acquisition, the buying firm continues its business while acquiring another firm (Garrette & Dussauge, 1999). This extra knowledge will give the firm more market power to benefit from (Chatterjee, 1986).
There are two types of theories about mergers and acquisitions. On the one hand there are the value-creating theories, on the other hand there are the value-destroying theories (Weitzel & McCarthy, 2011). The value-creating theories argue that mergers and acquisitions create value for both the acquiring firm and the acquired firm by creating synergies between them, while the value-destroying theories argue that mergers and acquisitions have at best inconclusive and at worst detrimental results on the firm (Weitzel & McCarthy, 2011).
The motivations to do a merger or acquisition come from the value creating theories. There are roughly three different categories with motivations for a merger or acquisition. These motivations are: create efficiencies, create market power or create corporate control (Weitzel & McCarthy, 2011).
The theory of efficiency suggests that mergers only occur when both parties are able to benefit from the merger, these mergers are also known as friendly mergers (Weitzel & McCarthy, 2011). The theory suggests that managers of the firms will only agree to the merger when they see benefits in the deal. With these mergers, the firms try to create efficiencies. These efficiencies exist when a merger creates synergies that are beneficial for both parties (Weitzel & McCarthy, 2011).
The market power can be created by scarce resources that create allocative synergies. These synergies enable the firm to charge higher prices and appropriate more from consumers (Weitzel & McCarthy, 2011). The market power theory will be further described in the next part.
8
Market Power theory
The origins of the market power theory can be found in Sayan Chatterjee’s article “Types of
Synergy and Economic Value: The Impact of Acquisitions on Merging and Rival Firms”¸ which he wrote
in 1986. With this theory, he wanted to add to the theory that in general, there is a potential of acquisitions to create economic value (Jensen and Ruback, 1983) . More specifically, he wanted to describe the acquisition strategies that focus on different classes of resources that create economic value.
The strategies that he defines strive for different kinds of synergies. He emphasizes the differences cost of capital (financial synergy), production (operational synergy) and prize (collusive synergy). The collusive synergy class represents the scarce resources that lead directly to market power. The class with operational synergy represents scarce resources that can lead to production and administrative synergies. The final category, financial synergy, represents scarce resources that can lead to lower costs of capital. He finds that collusive synergy has the highest effect on value creation (Chatterjee, 1986). This means that acquiring firms should look for scarce resources that improve their market power, because they have the biggest impact on creating economic value.
Despite the fact that the theory of market power is over 30 years old, it still gives no description of the results of mergers and acquisitions from the perspective of the acquired firm. The results from the perspective of the acquiring and the rival firms are discussed in Chatterjee (1986), but there is no conclusion from the perspective of the acquired firm.
Later on in 1991, Chatterjee expanded his theory further. In his article he describes how acquiring firms gain from integrating a target firm. His findings suggest that the acquiring firm benefits most when they operate in concentrated markets and the target firm operates in fragmented markets (Chatterjee, 1991). Despite this new contribution to the market power theory, until now the literature is still lacking empirical evidence for the benefits of the acquired firm.
Innovation and resources
9 In 1991, Barney introduced the resource-based view . The resource-based view describes a firm as a bundle of resources. These resources have to be valuable, rare, imperfectly imitable and non-substitutable to be able to create a sustained competitive advantage. A sustained competitive advantage, exists when a firm is implementing a value creating strategy, that cannot simultaneously be implemented by a competitor (Barney, 1991).
In recent research, the knowledge-based view has gained increasingly more attention (Zhou & Li, 2012). The knowledge-based view , assumes that knowledge is the most important productive resource in terms of value adding and strategic significance (Grant, 1997). The knowledge-based view forces managers to change their way of thinking about the organisation. The most important assumption of the knowledge based view is that “knowledge is the overwhelmingly important productive resource in
terms of its contribution to value added and its strategic significance” (Grant, 1997) For managers this
is important to understand, because this has a lot of influence on how they should manage their organisation.
The knowledge-based view makes a distinction between explicit knowledge and tacit knowledge. Explicit knowledge can easily be codified and therefore it is transferable at low cost. Tacit knowledge on the other hand is about ‘know-how’, therefore it is not easily codified and that makes it more costly to transfer this kind of knowledge (Grant, 1997). When knowledge is easily codified, patenting is a good protection mechanism. Especially in industries where technological inventions are done, cost of development are generally high, but cost of replication are low. In these industries patenting is an effective strategy for intellectual property protection (Bos et al., 2015).
Knowledge breadth or depth
The knowledge base of a firm influences it’s innovation performance (Jin et al., 2015; Zhou & Li, 2012; Crossan & Apaydin, 2009; Hung et al., 2015). A distinction can be made between knowledge breadth and knowledge depth, where breadth represents the horizontal dimension and depth reflects the vertical dimension of knowledge (Zhou & Li, 2012). In other words, a firm with a broad knowledge base has knowledge in a lot of different domains, while a firm with a deep knowledge base has more complex and sophisticated knowledge in a domain that belongs to the core competence of the firm (Bierly & Chakrabarti, 1996).
Generalist or specialist
10 by structural innovation (Golembiewski, 1965). On the other hand, generalists are usually bigger firms, that have multiple business units and knowledge in different domains. They can innovate by expanding their knowledge to other domains and creating new business units in these domains (Golembiewski, 1965).
If a generalist wants to innovate, it needs to gain new knowledge in another business field. It has to decide whether they want to create the knowledge themselves or whether they want to buy it externally, based on transaction cost economics. If the cost of creating the knowledge internally are too high, because the knowledge is too complex and sophisticated, the generalist can buy it externally (Oxley, 1999). If it decides to buy it externally, it has to buy the knowledge they need or it has to acquire an existing company for the patents that they have (Lim & Suh, 2016). The acquiring firm can now exploit the technologies that the acquired firm already possesses.
Deepening or broadening
The need for post-acquisition integration is determined by the motivations for the merger or acquisition. If the goal is to create operating efficiencies and economies of scale, high levels of integration might be needed. If the acquisition is to improve price-earnings ratio or sales growth, little or no integration is needed (Datta, 1991). An example of this phenomenon is when multinationals want to access new markets. In this case, a horizontal acquisition can be done. In most of these acquisitions, low levels of integration is needed (Herger and McCorriston, 2016). High levels of integration have a negative effect on the post-acquisition innovation performance, if the acquisition is done for innovation goals, it is better to keep at least the research and development department separated (Colombo & Rabbiosi, 2014).
If low integration is needed, it implies that the acquired firm keeps acting separately and therefore it determines its own way to innovate. The market power theory states that high class scarce resources have the highest potential for market power (Chatterjee, 1986).
Smaller firms often lack sufficient financial resources to innovate (Rosenzweig and Grinstein, 2015). By an acquisition of the firm, the opportunities arise for the specialist (the acquired firm) to further innovate. Specialists innovate by continuously improving their sophisticated knowledge (Golembiewski, 1965). By continuously innovating, specialists deepen their knowledge that they have. This enables them to become more efficient in their division, which gives them more opportunities to benefit from collusive synergies (Ahuja et al., 2014; Chatterjee, 1986).
11 of scale and scope. Once knowledge is created it can be used for different goals at low costs (Grant, 1997).
Firms that are acquired that want to create new knowledge, can either increase their depth or their breadth. This is in line with the logic of the market power theory, which says that firms need to look for high class scarce resources that improve their market power (Chatterjee, 1986). This is also in line with the resource-based view, which assumes that valuable, rare, imperfectly imitable and non-substitutable resources lead to a sustainable competitive advantage (Barney, 1991).
When the motivation for an acquisition is to create market power, specialisation leads to a sustainable competitive advantage. This sustainable competitive advantage can exist, because the creation of deep knowledge creates valuable, rare, imperfectly imitable and non-substitutable resources (Barney, 1991). Specialisation requires an increase in knowledge depth, which usually requires sacrificing breadth of knowledge (Grant, 1997). Specialists that are acquired have the possibility to focus on their specialism only instead of focussing on multiple categories. This creates high incentives to further deepen their knowledge, because this has the highest potential to be beneficial for them (Chatterjee, 1986). This leads to the following hypotheses.
H1: The acquisition of a firm will be positively related to its increase in knowledge depth.
Specialisation
As mentioned before, according to the knowledge-based view, the creation of new knowledge requires specialisation. This implies an increase in knowledge depth, while at the same time sacrificing breadth of knowledge is required (Grant, 1997). The knowledge-based view is building on the resource-based view, so it has the same underlying assumptions. According to the resource resource-based view, if a firm wants to have a sustainable competitive advantage, it needs valuable, rare, imperfectly imitable and non-substitutable resources (Barney, 1991).
A sustainable competitive advantage exists when the firm is able to implement a value creating strategy that cannot be implemented by a competitor at the same time. A sustainable competitive advantage does not last forever, but it exists as long as competitors are unable to duplicate the value creating strategy (Barney, 1991).
12 imperfectly imitable when firms that do not possess the advantage creating resource cannot obtain the resource (Barney, 1991). Non-substitutable resources implies that there must be no resource that can have the same strategic impact as the resource leading to the competitive advantage of the firm (Barney, 1991).
To translate these findings to the knowledge-based view, the assumption that knowledge is the most important resource should be kept in mind. Knowledge that possesses these characteristics has the possibility to lead to a sustainable competitive advantage (Grant, 1997).
New knowledge can be obtained when the firm increases its knowledge depth and sacrifices its knowledge breadth (Grant, 1997). This newly created knowledge has the potential to create a sustainable competitive advantage if it meets the requirements of valuable, rare, imperfectly imitable and non-substitutable. Especially deep knowledge has the potential to meet these requirements (Grant, 1997).
Following the logic above, it can be expected that an increased knowledge depth after acquisition leads to a sustainable competitive advantage. Specialisation thus has a mediating effect between acquisition and sustainable competitive advantage. This leads to the following hypotheses:
H2: Specialisation after acquisition leads to a sustainable competitive advantage.
Other influences
This research focuses on the influence of knowledge deepening of the acquired firm after acquisition on the sustainable competitive advantage of the acquired firm. Despite the influence of this, it is not the only factor that is influencing the competitive advantage of the firm. In the real world, more factors will be of influence (Coyne, 1986).
When a firm is acquired, it might benefit from the reputation that the acquiring firm already has. Reputation might enable firms to charge prices that it would not be able to charge when the market has a perfect competition (Vial & Zurita, 2017). Another example of which the acquired firm could benefit is the installed customer base of the acquiring firm. The acquiring firm might have a customer base that is loyal to that specific firm and therefore the customers prefer to buy products from that firm (Yang et al., 2017). The acquired firm might benefit from these kind of factors and therefore the influence of this cannot be neglected.
In order to isolate the effect of the increased depth on competitive advantage, the direct effect of an acquisition on competitive advantage will be tested as well. The logic above leads to the following hypotheses:
13
Conceptual Model
Methodology
For this research, the empirical cycle is followed. This theory testing approach is appropriate when the existing literature field is scattered and shows conflicting results (Van der Bij et al., 2012). This is the case in this research, thus this approach will be used. For this research, data will be collected using existing databases. Therefore the following steps are followed: 1. Identification of business phenomenon; no conclusive evidence in academic literature. 2. Identification of variables and conducting hypotheses. 3. Data-collection and statistical analysis. 4. Analysis of results, theoretical and managerial implications and future research (Van der Bij et al., 2012).
Data collection
In this study, existing databases are used. The data is obtained from ORBIS and annual reports of the firms. The sample exists of cross-sectional data from organisations that are acquired, but kept active as a separate firm. Only acquired firms are taken into account, because an acquisition is the most effective mechanism when it concerns knowledge (Prabhu et al., 2005). In the final sample, 77 acquired firms were included in the database, with at least 30 patents to be able to measure the knowledge base of the firm. The firms are from five different industries; machinery, metals, chemicals, wholesale and other services. These industries are selected, since they can be identified as high-tech industries and innovation plays an important role in high-tech industries (Xia & Liu, 2017). In order to obtain the patent data, ORBIS is also used. In this database the patents of these firms can be found, which makes it able to make calculations for knowledge depth and breadth.
Sample
14 This five year window is used, since the response time for an acquisition is five years (O’Burne & Syrower, 1998). The firms have to keep their own identity to be able to analyse their knowledge base at two points in time. Cross sectional data is used to be able to compare the firms at the point of acquisition and five years later. The 77 firms are thus measured at two points in time which gives a total of 154 observations.
To obtain the variables, the search strategy in ORBIS is set with completed acquisitions and the firms in the results have to be target firms. This search strategy results in a list of acquired firms. The variables can all be found in ORBIS, but some variables were missing for several companies. In these cases, annual reports of the companies were used to complete the database.
Finally , all the variables have been entered in an excel spreadsheet. The statistical software SPSS 24 has been used to conduct the statistical analysis.
Measurements
The following measurements will be used to conduct this research
Acquisition: This research focusses on firms that were acquired only. To exist in this database, firms need to be acquired by another firm. This is the primary requirement for this research, so firms that were not acquired will not exist in this database. The time on which the firm is not yet acquired will be coded 0 and the time in which the firm is acquired will be coded 1, this makes it able to check for the differences between the points in time.
Knowledge depth: Knowledge depth is not possible in all fields in which a firm possesses knowledge (Zhou & Li, 2012). According to Zhou & Li (2012), knowledge depth is concentrated in the core fields of the firm. Knowledge depth can be measured by the concentration of the knowledge base (Zhang et al., 2007). In this research, we will use the measurements of Prabhu et al. (2005) and Wu & Shanley (2009), who measure depth by the average number of patents in each of the classes found in the firm’s knowledge base. A higher number of patents per class would identify a higher concentration and thus more knowledge depth.
15 would mean a lower knowledge depth and a higher knowledge breadth. Therefore in this research it is not necessary to measure knowledge breadth separately.
Competitive advantage: A competitive advantage exists when a firm is able to implement a value creating strategy that cannot simultaneously be implemented by a competitor (Barney, 1991). The firm needs to acquire resources and capabilities that create an imperfect competition, this enables them to create economic rent (Barney, 2001). In this research the economic rent will be measured by the net profit margin to identify the competitive advantage that the firm has. Economic rent can be best observed in the firm’s financial performance (Qian et al., 2016), therefore in this research the net profit margin of the firm will be used to measure this.
Control variables
The dependent variable in this research is sustainable competitive advantage, so the characteristics of the firm play a role. Therefore the following control variables are used:
Firm age acquired firm: Firm age has a significant effect on the performance of a firm. Younger firms might benefit more from experience and knowledge from the acquiring firm, while older firms may possess more resources and have more experience on their own (Liu et al., 2015). Firm that have a higher age could be more developed and therefore have less effects of mergers and acquisitions (Wimble et al., 2016). Therefore we control the results for firm age. Firm age is measured in the number of years since the founding of the firm (Shinkle and Kriauciunas, 2009) .
Firm size acquired firm: Firm size directly influences a firms performance (Porter, 1981). Small firms usually have difficulties to benefit from external resources, because they lack the experience to successfully implement it (Srikantha et al., 2015). On the other hand, when firms are large, the direct effect of a merger or acquisition is less visible because it has smaller effect on firm performance (Preusse & Georgopoulos, 2009). Therefore adding firm size as a control variable is important for this research. This will be done by including number of employees to measure firm size (Rayan et al., 2001).
Number of patents acquired firm: The total number of patents gives a good estimate of the knowledge production-function (Crepon & Duguet, 1997). Since knowledge production is the most important source of innovation (Grant, 1997), this can have influence on the competitive advantage of the firm (Crossan & Apaydin, 2009). In this research patent data is used to measure depth, therefore it is important to control for the total number of patents that the firm possesses.
16 performance of the firms between the industries (Quitzow et al., 2017), it is necessary to control for the different industries.
Firm size of acquiring firm: Firm size directly influences a firms performance (Porter, 1981). Small firms usually have difficulties to benefit from external resources, because they lack the experience to successfully implement it (Srikantha et al., 2015). On the other hand, when firms are large, the direct effect of a merger or acquisition is less visible because it has lesser effect on firm performance (Preusse & Georgopoulos, 2009). These factors might influence the goal that the acquiring firm has with the acquisition and therefore it is necessary to control for the firm size of the acquiring firm. The number of employees will be used to measure firm size of the acquiring firm (Rayan et al., 2001).
Industry of the acquiring firm: In this sample, the acquiring firms come from six different industries. These are machinery, metals, chemicals, wholesale, other services and investment. The effects of an acquisition can differ between industries (Yaghoubi et al., 2014). Because of these differences in returns of acquisitions, it is necessary to control for the different industries.
Within or cross industry acquisition: Whether the acquisition is within the same industry or cross-industry can affect the innovation of the acquired firm. Firms might enhance their performance by entering new markets and then they need to innovate in another market (Golembiewski, 1965), but it might also be that an acquisition is done for other reasons like a greater market share (Williams & Williams, 2015). This variable therefore gives some information about the strategy of the acquiring firm with the acquisition. Therefore it is necessary to control for within or cross industry acquisitions.
Method of analysis
As explained before, this study consists of a sample with cross-sectional data. The dependent variable in this study is a numeric variable. The study investigates the dependence between one dependent variable and an independent variable and a mediator. Therefore, a multiple regression analysis should be used to test the hypotheses (Hair et al., 2014). Besides this, another test is needed for the first hypotheses. To test this hypotheses, the same sample is tested in two points in time and therefore a dependent samples t-test is appropriate (Hair et al., 2014)..
17 The second step is to test the first hypotheses. Since the goal of this test is to measure the differences between two points in time of the same sample, a dependent samples t-test is appropriate. A fixed format is needed because the different time points need to be measured (Hair et al., 2014).
The third step is to test the baseline for the model by running a multiple regression analysis with only the control variables and the dependent variable. In model 1 only the dependent variable and the control variables are included in the analysis.
The fourth step is to test the third hypotheses, because this hypotheses examines the relationship between the independent variable and the dependent variable. To test this relationship, a multiple linear regression analysis is appropriate, because the dependent variable is a continuous numeric variable and the multiple linear regression analysis examines the relationship between this dependent variable and the independent variable and control variables. (Hair et al., 2014). In model 2 the third hypotheses has been tested and this model includes the independent variable, the dependent variable and the control variables.
The final step is to the second hypotheses, because this hypotheses concerns the mediation of knowledge depth. To test the mediation of knowledge depth, a multiple regression analysis was conducted. This test is appropriate because the dependent variable is a continuous numeric variable and the multiple linear regression test examines whether knowledge depth has a mediating effect between acquisition and net profit margin (Hair et al., 2014). In model 3 all the variables are included.
Results
Descriptive statistics
The sample that was used in this study contains cross-sectional data of 77 firms with 2 observations at different time points for each firm. The first observation is at the time of acquisition and the second observation is five years after acquisition. The acquisitions have been completed between 2008 and 2011. The control variables industry and industry of the acquired firm were coded with dummy variables for each industry and were used in the regression analysis. The acquired variable has a mean of 0.5, because the firms were coded 0 at the time of acquisition and coded 1 five years later. The mediator knowledge depth has a mean of 2.79, with a standard deviation of 4.86. Furthermore for the within/cross industry, acquisitions that were completed within the same industry were coded with a 1 and cross industry acquisitions were coded with a zero. This gave a mean value of .45, which implies that 45% of the acquisitions were within industry.
Table 1. Descriptive statistics
18
Acquired .50 .502
Knowledge depth 2.79 4.86
Net profit margin (%) 8.02 18.82
Firm size 261.95 216.82
Firm age 39.21 25.66
Patents 119.08 191.43
Size acquiring firm 20552.42 51477.45 Within/cross industry .45 .50 Industry: - Machinery .45 .50 - Metals .10 .31 - Chemicals .09 .29 - Wholesale .05 .22 - Other services .30 .46 Industry acquiring firm
- Machinery .36 .48 - Metals .06 .25 - Chemicals .09 .29 - Wholesale .03 .16 - Investment .06 .247 - Other services .38 .49
Multicollinearity
The first step in the data analysis was to check for multicollinearity between the variables. First the correlations between the variables that were used is calculated. To be included in the analysis, the correlations needed to be below 0.7 (Hair et al., 2014). All the correlations were below 0.7 and therefore all the variables could be included in the analysis, see appendix 1.
The second step to check for multicollinearity was to check the VIF scores of the variables. The VIF scores of the variables need to be under 10 to be able to rule out multicollinearity. All the VIF scores were under 10, except the AcqMachinery and AcqOtherServices, but since these two are dummy variables within a categorical control variable, this multicollinearity can be safely ignored (Allison, 2012). The mean VIF over all variables is 4.631. The dummy of the industry of the acquiring firm machinery has the highest VIF of 20.472, but as mentioned before, this can be safely ignored. Acquisition has the lowest VIF score with 1.019. The VIF scores for all the variables can be found in appendix 2.
Hypotheses
The first step in the testing of the hypotheses was to test the first hypotheses “H1: The
19 tested by conducting a dependent samples t-test (Hair et al., 2014). This test was used to be able to see the differences over time and measure the influence of the acquisition on knowledge depth. This test can display whether the acquisition makes the acquired firm further deepen its knowledge or broaden it. The results show that there is no significant effect (B=.323 and p=.592), therefore H1 is not confirmed. Although the relationship is positive, this implies that there is no statistical evidence that the acquisition of a firm leads to an increase in knowledge depth of the acquired firm.
Table 2. Dependent samples t-test results Variables Knowledge depth Acquired
0,323 (.592) ***P<0.01 **P<0.05 *P<0.1
Second, all the control variables were tested in the multiple regression analysis model 1. In this model, only the control variables and the dependent variable were included. This model presents the baseline model. The F-test was highly significant in this model and therefore this model gives a good implication which control variables were significant. Both the industry of the acquired firm and the industry of the acquiring firm control variables were included in the analysis, of these dummies only the chemical industry of the acquired firm was significant, while all the industry dummies of the acquiring firm were significant.
Third, in Model 2 the third hypotheses was tested“H3: Acquisition of a firm leads to a sustainable
competitive advantage for the acquired firm.” To test the impact of the acquisition on net profit margin,
this test was included in the mediator model (Hair et al., 2014). The F-test of the model was again highly significant. The acquired variable was not significant (B=1.810 and p=.517), so H3 is not confirmed. This implies that there is no statistical evidence that the acquisition of a firm leads to an increase in net profit margin for the acquired firm.
Table 3. Multiple regression analysis results
Variables Model 1 Model 2 Model 3
20
(.009) (.009) (.009)
Size acquiring firm .000 .000 .000
(.000) (.000) (.000) Within/cross industry -5.865* -5.885* -6.301** (3.189) (3.196) (3.169) Constant -58.856*** -59.732*** -61.734*** (12.905) (13.002) (12.903) N observations 154 154 154 N firms 77 77 77 F-Test 3.173*** 2.989*** 3.107*** R2 .256 .259 .280 a. Significance level *P<0.1 **P<0.05 ***P<0.01 b. Unstandardized coefficients are reported c. Standard error in parentheses
d. Industry and industry of the acquired firm are included as dummy control variables, but are not reported in results. They can be found in appendix 3.
Finally, the second hypotheses was tested, “H2: Specialisation after acquisition leads to a sustainable
competitive advantage.” To test this relationship, a multiple linear regression analysis is appropriate,
because the dependent variable is a continuous numeric variable and this test examines the relationship between a single dependent variable and multiple other variables (Hair et al., 2014). In model 3, acquisition was included as independent factor and knowledge depth was included as mediator. The F-test of this model was also highly significant. The acquired variable was again not significant (B=1.692 and p=.540), but the knowledge depth variable was significant (B=.611 and P=.049). This implies that there is statistical evidence that a higher knowledge depth leads to a higher net profit margin for acquired firms.
21
Discussion
Theoretical implications
The first hypotheses of this study was that an acquisition of a firm would lead to an increase in knowledge depth. The statistical test of this hypotheses were not significant. This implies that there is no statistical evidence that an acquisition of a firm leads to an increase in knowledge depth. This could be a result of the fact that in the sample both firms that increased their knowledge depth as well as firms that decreased their knowledge depth were included. Therefore, this mixed database could be the reason for the insignificant results, because a number of firms that did increase their depth might have shown a positive result, whereas firms that decreased their depth had a negative result. These results combined would then lead to an insignificant test.
The fact that there was no significant evidence that an acquisition would lead to an increase in knowledge depth can have several possible explanations. This insignificant result might be a result of the fact that there can be multiple motivations for an acquisition (Motis, 2007). If it would be the case that the acquisition was done for more market share, the acquiring company would not try to influence the innovation policy of the acquired company (Williams & Williams, 2015). If this is the motivation for the acquisition and the internal knowledge depth that the acquired firm already had was satisfying for new product development, they might have no incentive to further deepen their knowledge (Caner & Tyler, 2015).
On the other hand there might be firms that are acquired for additional knowledge in new market domains (Golembiewski, 1965). In these situations, the acquired firm would have to deepen their knowledge commissioned by the acquiring firm and consequently their knowledge depth could increase.
Another possibility is that the acquisition was done for complementary assets that the acquired firm already possesses (Dyer & Singh, 1998). In this case, there might be no incentive left to further innovate (Colombo & Dawid, 2016).
Considering these different motivations for acquisitions together, this mix in the database seems the most likely explanation for the insignificant effect of hypotheses one. In order to get a significant result, the motivation for the acquisition should be known (Motis, 2007). By creating new groups that have the same motivation a significant effect might be found, but this information was not available for this research.
22 review, there are multiple possible motivations for a merger or acquisition (Weitzel & McCarthy, 2011). Therefore, the expectations that the acquiring firm has from the acquired firm might differ for every acquisition. All these acquisitions taken together might then thus lead to insignificant results.
A possible explanation might be that the acquired company keeps active for their innovation, to enable the acquiring firm to benefit from the extra knowledge that is generated by the acquired firm. In this case only the acquiring firm would benefit from the additional knowledge depth of the acquired firm (Ahuja & Katila, 2001).
The second hypotheses was significant. This implies that there is statistical evidence that a higher knowledge depth leads to more profit margin for acquired firms. This result is in line with the theory of Grant (1997), who identifies knowledge as the most important source for a sustainable competitive advantage. According to the resource-based view, a firm needs valuable, rare, imperfectly imitable and non-substitutable resources to create a sustainable competitive advantage (Barney, 1991). Deep knowledge represents such a resource. A higher knowledge depth indicates more sophisticated knowledge, and this gives the firm an advantage over other firms.
Once the firm is acquired, it can drop some of the tasks that it had to take care of before (Öberg & Leminen, 2017). This means that the firm can assign more resources to the development of new knowledge. This new knowledge then enables the firm to implement a value creating strategy that cannot be implemented by any competitor at the same time, so this gives the firm a sustainable competitive advantage (Barney, 1991).
To conclude, acquired firms do thus benefit from a higher knowledge depth. There is statistical evidence that a higher knowledge depth leads to a higher net profit margin.
Managerial implications
23 to acquire a firm so that they can benefit from the specialisation of the acquired firm, they should stimulate the acquired firm to increase their knowledge depth (Golembiewski, 1965).
From the perspective of the managers of the acquired firm, it is important to understand how their knowledge development influences their performance after acquisition. For acquired firms, a significant result was found that a higher knowledge depth leads to a higher net profit margin. This implies that managers of the acquired firm should carefully determine their innovation policy after the acquisition (Öberg & Leminen, 2017), because this influences their firm performance. Acquired firms do thus benefit from a higher knowledge depth. This means that firms that are acquired should try to specialise their knowledge in order to create a competitive advantage. If the possibility exists, managers could try to drop some of their other tasks of the business to the acquiring firm and try to spend as many resources as possible on the increase of knowledge depth, which will create a competitive advantage for them.
Limitations
The biggest limitation of this study is that it is based only on existing data in databases. Therefore, the motivations underlying the acquisition are not clear. Only firms that had patent requests were used because this is an indication of innovative behaviour (Hall, 2009), but this is no evidence whether or not the acquisition was made because of the innovation.
Another limitation is that time was limited for this study. Working with patents is very time-consuming and therefore the number of firms in this database were limited.
The patent data used is also a limitation in this study. In this study a window of one year was used to measure patent data, but a larger time window to compare might have resulted in significant results (Hall et al., 2001). Another limitation of patent data is that it only measures explicit knowledge and not tacit knowledge, which might also have important effects on a sustainable competitive advantage (Grant, 1997).
Future research
To solve the first limitation of this study, not only secondary data which was available in databases should be used. Instead of this, managers should be interviewed to ask for the motivations behind the acquisition. This makes it able to create a research that consists of only acquisitions that were done with a specific motivation.
24 Future research might also include tacit knowledge production in measure of depth from perspective of acquired firm. This research did only use patents as a measure for knowledge, but this is not the only type of knowledge that can have influence on a sustainable competitive advantage. In some cases tacit knowledge might be more important for the sustainable competitive advantage than the explicit knowledge that the firm has (Grant & Baden-Fuller, 2004; Hitt et al., 2000).
Future research could try to include complementary resources from perspective of acquired firm. Normally research views complementary assets from the perspective of the acquiring firm, but the incentives to innovate from the perspective of the acquired firm might as well be determined by the complementary assets that the acquiring firm possesses (Colombo & Dawid, 2016).
Future research might also define what the motivations for the acquired firm were to sell their firm. Most of the research has focussed on the motivation for acquiring firms, but it might be that selling the firm leads to an increase in performance because of the availability of complementary assets (Dyer & Singh, 1998).
Conclusion
The main objective of this study was to give empirical evidence from the perspective of the acquired firm for the relationship between the acquisition of a firm and the innovative performance of the acquired firm, as well as to examine the relationship between the innovative performance after acquisition of the acquired firm with the economic value creation of the acquired firm. It was expected that that an acquisition of the firm would lead to an increase in knowledge depth of the acquired firm and that this increased depth would lead to a sustainable competitive advantage for the acquired firm. Testing the hypotheses with the sample, there was no statistical evidence found for hypotheses 1 and 3. This implies that there is no statistical evidence that an acquisition leads to an increase in knowledge depth, neither that an acquisition leads to an increase in net profit margin of the acquired firm. This is in line with previous research that argues that there are mixed effects from an acquisition on the performance of the acquired firm (e.g. Cruz-González et al., 2014; Damijan et al., 2014).
The second hypotheses of this study was significant. This implies that a higher knowledge depth leads to a higher net profit margin for acquired firms. This is in line with the theories of Barney (1991) and Grant (1997), who identify knowledge as the most important resource and argue that this can lead to a sustainable competitive advantage. Managers should be aware of this and keep this in mind while determining their innovation policy after being acquired.
26
References
Ahuja, G. and Katila, R. (2001). Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study. Strategic Management Journal, 22(3), pp.197-220.
Ahuja, G., Lampert, C. and Tandon, V. (2014). Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks. Organization Science, 25(3), pp.653-669.
Allison, P. (2012). Multiple regression: a primer. Thousand Oaks, CA: Pine Forge Press.
Anderson, K. (2012). Specialists and generalists: Equilibrium skill acquisition decisions in problem-solving populations. Journal of Economic Behavior & Organization, 84(1), pp.463-473.
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), pp.99-120.
Barney, J. (2001). Resource-based theories of competitive advantage: A ten-year retrospective on the resource-based view. Journal of Management, 27(6), pp.643-650.
Bierly, P. and Chakrabarti, A. (1996). Generic knowledge strategies in the U.S. pharmaceutical industry.
Strategic Management Journal, 17(S2), pp.123-135.
Bos, B., Broekhuizen, T. and de Faria, P. (2015). A dynamic view on secrecy management. Journal of
Business Research, 68(12), pp.2619-2627.
Caner, T. and Tyler, B. (2014). The Effects of Knowledge Depth and Scope on the Relationship between R&D Alliances and New Product Development. Journal of Product Innovation Management, 32(5), pp.808-824.
Chandy, R., Prabhu, J. and Tellis, G. (2009). Radical innovation across nations: The Preeminence of corporate culture. Journal of Marketing, 73(1), pp.3-23.
27 Chatterjee, S. (1991). GAINS IN VERTICAL ACQUISITIONS AND MARKET POWER: THEORY AND EVIDENCE.
Academy of Management Journal, 34(2), pp.436-448.
Colombo, L. and Dawid, H. (2016). Complementary assets, start-ups and incentives to innovate.
International Journal of Industrial Organization, 44, pp.177-190.
Colombo, M. and Rabbiosi, L. (2014). Technological similarity, post-acquisition R&D reorganization, and innovation performance in horizontal acquisitions. Research Policy, 43(6), pp.1039-1054.
Coyne, K. (1986). Sustainable competitive advantage—What it is, what it isn't. Business Horizons, 29(1), pp.54-61.
Crepon, B. and Duguet, E. (1997). ESTIMATING THE INNOVATION FUNCTION FROM PATENT NUMBERS: GMM ON COUNT PANEL DATA. Journal of Applied Econometrics, 12(3), pp.243-263.
Crossan, M. and Apaydin, M. (2009). A Multi-Dimensional Framework of Organizational Innovation: A Systematic Review of the Literature. Journal of Management Studies, 47(6), pp.1154-1191.
Cruz-González, J., López-Sáez, P., Emilio Navas-López, J. and Delgado-Verde, M. (2014). Directions of external knowledge search: investigating their different impact on firm performance in high-technology industries. Journal of Knowledge Management, 18(5), pp.847-866.
Damijan, J., Kostevc, Č. and Rojec, M. (2014). Growing Lemons or Cherries? Pre and Post-acquisition Performance of Foreign-Acquired Firms in New EU Member States. The World Economy, 38(4), pp.751-772.
Datta, D. (1991). Organizational fit and acquisition performance: Effects of post-acquisition integration.
Strategic Management Journal, 12(4), pp.281-297.
Dickerson, A., Gibson, H. and Tsakalotos, E. (1997). THE IMPACT OF ACQUISITIONS ON COMPANY PERFORMANCE: EVIDENCE FROM A LARGE PANEL OF UK FIRMS. Oxford Economic Papers, 49(3), pp.344-361.
28 Garrette, B. and Dussauge, P. (1999). Cooperative strategy: Competing successfully through strategic
alliances. Chichester, United Kingdom: Wiley, John & Sons.
Golembiewski, R. (1965). Specialist or Generalist?: Structure as a Crucial Factor. Public Administration
Review, 25(2), p.135.
Grant, R. (1997). The knowledge-based view of the firm: Implications for management practice. Long
Range Planning, 30(3), pp.450-454.
Grant, R. and Baden-Fuller, C. (2004). A Knowledge Accessing Theory of Strategic Alliances. Journal of
Management Studies, 41(1), pp.61-84.
Hair, J., Black, W., Babin, B. and Anderson, R. (2014). Multivariate data analysis. Harlow: Pearson Education Limited.
Hall, B.H. (2009). BUSINESS AND FINANCIAL METHOD PATENTS, INNOVATION, AND POLICY. Scottish
Journal of Political Economy, 56(4), pp.443-473.
Hall, B.H., Jaffe, A.B. and Trajtenberg, M. (2001). The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.
Herger, N. and McCorriston, S. (2016). Horizontal, Vertical, and Conglomerate Cross-Border Acquisitions. IMF Economic Review, 64(2), pp.319-353.
Hitt, M., Dacin, M., Levitas, E., Arregle, J. and Borza, A. (2000). PARTNER SELECTION IN EMERGING AND DEVELOPED MARKET CONTEXTS: RESOURCE-BASED AND ORGANIZATIONAL LEARNING PERSPECTIVES. Academy of Management Journal, 43(3), pp.449-467.
Hitt, M., Harrison, J. and Ireland, R. (2001). Mergers and acquisitions. New York: Oxford University Press.
Hung, K., Peng, N., Chen, A. and Chen, Y. (2015). Managing inside-out open innovation strategically: The roles of ETC strategy and knowledge base. Proceedings of ISPIM Conferences, pp.1-23.
Jensen, M. and Ruback, R. (1983). The Market for Corporate Control: The Scientific Evidence. Journal of
29 Jin, X., Wang, J., Chen, S. and Wang, T. (2015). A study of the relationship between the knowledge base and the innovation performance under the organizational slack regulating. Management Decision, 53(10), pp.2202-2225.
Kavusan, K., Noorderhaven, N. and Duysters, G. (2016). Knowledge acquisition and complementary specialization in alliances: The impact of technological overlap and alliance experience. Research
Policy, 45(10), pp.2153-2165.
Lazăr, S. (2016). Determinants of Firm Performance: Evidence from Romanian Listed Companies. Review
of Economic and Business Studies, 9(1).
Lim, S. and Suh, M. (2016). Intellectual Property Business Models Using Patent Acquisition: A Case Study of Royalty Pharma Inc. Journal of Commercial Biotechnology, 22(2).
Liu, X., Wright, M. and Filatotchev, I. (2015). Learning, firm age and performance: An investigation of returnee entrepreneurs in Chinese high-tech industries. International Small Business Journal, 33(5), pp.467-487.
Löfsten, H. (2016). Business and innovation resources. Management Decision, 54(1), pp.88-106.
Marsillac, E. and Ying, L. (2015). External knowledge acquisition and innovation: The role of supply chain network-oriented flexibility and organisational awareness. International Journal of Production
Research, 53(18), pp.5437-5455.
Motis, J. (2007) Mergers and Acquisitions Motives. Working Papers 0730, University of Crete, Department of Economics.
Öberg, C. and Leminen, S. (2017). Gap analysis for innovative firm acquisition – acquirer and acquired party perspectives. Journal of Organizational Change Management, 30(3), pp.380-395.
30 Oruç Erdoğana, E., Erdoğan, M. and Vesile, Ö. (2015). Evaluating the Effects of Various Financial Ratios on Company Financial Performance: Application in Borsa Đstanbul. Business & Economics
Research, 6(1), pp.35-42.
Oxley, J. (1999). Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances. Journal of Economic Behavior &
Organization, 38(3), pp.283-309.
Porter, M. (1981). The Contributions of Industrial Organization to Strategic Management. The Academy
of Management Review, 6(4), p.609.
Prabhu, J., Chandy, R. and Ellis, M. (2005). The Impact of Acquisitions on Innovation: Poison Pill, Placebo, or Tonic?. Journal of Marketing, 69(1), pp.114-130.
Preusse, H. and Georgopoulos, A. (2009). Cross-border acquisitions vs. Greenfield investment: A comparative performance analysis in Greece. International Business Review, 18(6), pp.592-605.
Qian, C., Wang, H., Geng, X. and Yu, Y. (2016). Rent appropriation of knowledge-based assets and firm performance when institutions are weak: A study of Chinese publicly listed firms. Strategic
Management Journal, 38(4), pp.892-911.
Quitzow, R., Huenteler, J. and Asmussen, H. (2017). Development trajectories in China’s wind and solar energy industries: How technology-related differences shape the dynamics of industry localization and catching up. Journal of Cleaner Production, 158, pp.122-133.
Rajan, R., Zingales, L. and Kumar, K. (2001). What Determines Firm Size?. SSRN Electronic Journal.
Rosenzweig, S. and Grinstein, A. (2015). How Resource Challenges Can Improve Firm Innovation Performance: Identifying Coping Strategies. Creativity and Innovation Management, 25(1), pp.110-128.
Saboo, A., Sharma, A., Chakravarty, A. and Kumar, V. (2017). Influencing Acquisition Performance in High-Technology Industries: The Role of Innovation and Relational Overlap. Journal of Marketing
31 Sharma, M. (2016). Cross Border Mergers and Acquisitions and The Exchange Rate: A Literature Review.
Journal of International Economics, 7(2), pp.23-34.
Shinkle, G. and Kriauciunas, A. (2009). Institutions, size and age in transition economies: Implications for export growth. Journal of International Business Studies, 41(2), pp.267-286.
Srikantha Dath, T., Sivasubramanian, C. and Mageswari, U. (2015). Impact of Size of the Manufacturing Firms on Knowledge Management Practices: An Empirical Analysis. Jurnal Pengurusan, 45, pp.13-26.
van der Bij, H., Berends, H. and van Aken, J. (2012). Problem solving in organizations: A methodological
handbook for business and management students. 2nd ed. Cambridge: Cambridge University Press.
van Oudheusden, M., Charlier, N., Rosskamp, B. and Delvenne, P. (2015). Broadening, deepening, and governing innovation: Flemish technology assessment in historical and socio-political perspective.
Research Policy, 44(10), pp.1877-1886.
Vial, B. and Zurita, F. (2017). ENTRANTS' REPUTATION AND INDUSTRY DYNAMICS. International
Economic Review, 58(2), pp.529-559.
Weitzel, U. and McCarthy, K. (2011). Theory and evidence on mergers and acquisitions by small and medium enterprises. International Journal of Entrepreneurship and Innovation Management, 14(2/3), p.248.
Williams, C. and Williams, R. (2015). Optimizing acquisition and retention spending to maximize market share. Journal of Marketing Analytics, 3(3), pp.159-170.
Wimble, M., Singh, H. and Phillips, B. (2016). A Multilevel Model of Information Technology Value.
Journal of Computer Information Systems, 57(3), pp.201-207.
Wu, J. and Shanley, M. (2009). Knowledge stock, exploration, and innovation: Research on the United States electromedical device industry. Journal of Business Research, 62(4), pp.474-483.
32 Yaghoubi, R., Locke, S. and Gibb, J. (2014). Acquisition returns: does industry matter?. Studies in
Economics and Finance, 31(3), pp.309-324.
Yang, S., Song, Y., Chen, S. and Xia, X. (2017). Why are customers loyal in sharing-economy services? A relational benefits perspective. Journal of Services Marketing, 31(1), pp.48-62.
Zhang, J., Baden-Fuller, C. and Mangematin, V. (2007). Technological knowledge base, R&D organization structure and alliance formation: Evidence from the biopharmaceutical industry. Research Policy, 36(4), pp.515-528.
Appendix 1
Correlations APearson Correlation
Net profit margin ( %) Firm size (Empl oyees) Firm age (Yea rs) Patent s Size acquiri ng firm in/cros s-industr y Machi nery Metals Chemi cals Whole sale Others ervice s AcqMa chiner y AcqMe tals AcqCh emical s AcqW holesa le AcqOt herser vices AcqInv estme nt Net profit margin ( %) 1,000 ,031 ,119 ,189 -,094 -,073 -,068 -,044 ,191 ,002 -,018 ,099 ,021 -,002 ,008 -,007 -,024 Firm size (Employees) ,031 1,000 ,110 ,085 ,075 -,088 ,106 -,004 ,171 ,031 -,234 ,174 ,095 ,007 ,064 -,170 -,130 Firm age (Years) ,119 ,110 1,000
,290 ,114 -,064 ,060 ,169 ,125 -,112 -,202 ,053 ,223 -,019 ,101 -,092 -,125
34
Appendix 2
VIF scores
Variables VIF
(Constant)
Firm size (Employees) 1,174 Firm age (Years) 1,330
Patents 1,442
Size acquiring firm 1,173 in/cross-industry 1,336 Metals 1,380 Chemicals 1,336 Wholesale 1,297 Otherservices 1,568 AcqMachinery 20,472 AcqMetals 6,338 AcqChemicals 7,961 AcqWholesale 3,424 AcqOtherservices 20,087 AcqInvestment 6,201 Acquired 1,019 Knowledge depth 1,190
35
Appendix 3
Industry dummies
Variables Model 1 Model 2 Model 3
Machinery - - - Metals -.416 -.396 .132 (5.295) (5.306) (5.257) Chemicals 11.843** 11.921** 10.195* (5.465) (5.478) (5.488) Wholesale 1.458 1.434 2.116 (7.057) (7.072) (7.005) Otherservices .3.688 .3.705 .3.748 (3.767) (3.775) (3.735) AcqMachinery 72.257*** 72.405*** 72.946*** (12.946) (12.975) (12.840) AcqMetals 63.071*** 63.348*** 61.044*** (14.017) (14.052) (13.984) AcqChemicals 61.693*** 61.864*** 61.044*** (13.506) (13.536) (13.399) AcqWholesale 67.949*** 68.197*** 69.337*** (16.005) (16.043) (15.883) AcqOtherservices 66.067*** 66.175*** 67.010*** (12.728) (12.756) (12.628) AcqInvestment 64.351*** 64.434*** 65.524*** (13.904) (13.934) (13.796)
