Search

Does Digital M&A Improve a Firm's Digital Innovation Performance? Evidence from Chinese A-Share Listed Companies

Author(s)

Zexuan Fu, Yuxun Mei, Xiaofan Hu

Affiliation(s)

International Business School Suzhou at XJTLU, Suzhou, China

Abstract

In the digital era, acquiring digital resources through M&A has become an important way for firms to carry out digital transformation. Using digital M&A events from Chinese A-share listed companies during 2010 to 2018, this paper studies how digital M&A relates to firm-level digital innovation performance. The results show that digital M&A increases the number of new digital patents filed by the acquirer in the years after the deal. Compared with exploitative digital innovation, the effect on exploratory digital innovation is much stronger and more persistent. Mechanism tests show that digital M&A works mainly through two channels. It expands the acquirer's digital knowledge base, and it makes up for limited digital knowledge absorption capacity. The effect is especially large for firms that start with a weak digital foundation. The findings give practical guidance for traditional firms that want to use M&A as a tool for digital transformation.

Keywords

Digital M&A; Digital Innovation Performance; Digital Transformation; Exploratory Innovation; Knowledge Base.

References

[1] Yoo, Y., Boland, R.J., Lyytinen, K., Majchrzak, a.: Organizing for Innovation in the Digitized World. Organization Science 23(5), 1398-1408 (2012) [2] Hanelt, a., Firk, S., Hilebrandt, B., Kolbe, M.: Digital M&A, Digital Innovation and Firm Performance: an Empirical Investigation. European Journal of Information Systems 30(1), 3-26 (2021) [3] Henderson, R., Cockburn, I.: Scale, Scope and Spillovers: the Determinants of Research Productivity in Drug Discovery. Rand Journal of Economics 27(1), 32-59 (1996) [4] Graebner, M.E., Eisenhardt, K.M., Roundy, P.T.: Success and Failure in Technology Acquisitions: Lessons for Buyers and Sellers. Academy of Management Perspectives 24(3), 73-92 (2010) [5] Gao, L.S., Iyer, B.: Analyzing Complementarities Using Software Stacks for Software Industry Acquisitions. Journal of Management Information Systems 23(2), 119-147 (2006) [6] Tang, B., Liu, L.: Does Digital M&A Improve the Digital Innovation Performance of Firms? Evidence from Chinese A-share Listed Companies. Dong Yue Tribune 44(10), 142-153 (2023) [7] Tang, H., Jiang, D.: Digital M&A and Digital Transformation: Connotation, Facts and Experience. Economists 4, 84-93 (2021) [8] Vial, G.: Understanding Digital Transformation: a Review and a Research Agenda. Journal of Strategic Information Systems 28(2), 118-144 (2019) [9] March, J.G.: Exploration and Exploitation in Organizational Learning. Organization Science 2(1), 71-87 (1991) [10] Bierly, P., Chakrabarti, a.: Generic Knowledge Strategies in the Pharmaceutical Industry. Strategic Management Journal 17(S2), 123-135 (1996) [11] Valentini, G.: Measuring the Effect of M&A on Patenting Quantity and Quality. Strategic Management Journal 33(3), 336-346 (2012) [12] He, Z.L., Wong, P.K.: Exploration vs. Exploitation: an Empirical Test of the Ambidexterity Hypothesis. Organization Science 15(4), 481-494 (2004) [13] Svahn, F., Mathiassen, L., Lindgren, R.: Embracing Digital Innovation in Incumbent Firms: How Volvo Cars Managed Competing Concerns. MIS Quarterly 41(1), 239-253 (2017) [14]Arnoldi, J., Muratova, Y.: Unrelated Acquisitions in China: the Role of Political Ownership and Political Connections. Asia Pacific Journal of Management 36(1), 113-134 (2019)