The Impact of Acquisitions on Innovation

Abstract:

How do acquisitions affect the creation and diffusion of knowledge? We develop a new dataset linking US patents to publicly listed firms and their subsidiaries. It combines patent records from 1926–2023 with dynamic ownership histories spanning 1950–2023. All sectors of the American economy over seven decades are covered. This allows us to follow inventions across changes in corporate control and distinguish new invention from transfers of existing patents. Using event studies and matched difference-in-differences specifications, we examine how acquisitions affect the quantity, technological impact and direction of innovation. Our results suggest that, contrary to prior analyses on sub-sectors or specific time periods, acquisitions can increase the aggregate quantity and quality of innovation.