Radical or Incremental? Impacts of Mergers and Acquisitions on Firms’ Innovation

Abstract

This article studies whether and how mergers and acquisitions (M&A) intensity makes an impact on a firm's postacquisition innovation. By differentiating the types of innovation, we show that M&A has differential effects on postacquisition radical innovation and incremental innovation. Using a publicly listed firm sample in China from 2011 to 2015, our empirical results provide support that M&A intensity has an inverted U-shaped effect on radical innovation, and has a positive and significant impact on incremental innovation. Furthermore, we introduce Chief Executive Officer (CEO) career background as a contingency factor, showing that the inverted U-shaped relationship between M&A intensity and radical innovation is more pronounced in firms with technical CEOs than in those with nontechnical CEOs, and the positive relationship between M&A intensity and incremental innovation is more pronounced in firms with nontechnical CEOs than in those with technical CEOs. Our findings add to the understanding of organizational consequences of M&A and the role of strategical leadership in the relationship between M&A intensity and firm innovation.

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