Hiring New Key Inventors to Improve Post-M&A Innovation Performance

Although M&As are acknowledged as an important means to access innovative assets and know-how, innovation performance often declines in the post-M&A period. Reasons identified by the prior literature include financial, managerial and organizational constraints related to an M&A event. In consequence, inventors’ innovation performance declines and inventors leave the firm. Prior literature treats the acquiring firm as a passive observer of innovation declines. This study argues that acquiring firms can take measures by hiring new key inventors. Drawing from the knowledge based view of the firm, we first establish that decreasing innovation performance in the post-M&A period stems from two distinctive channels: inventor departure and declining innovation performance of inventors that remain. We find that the latter effect is much stronger as compared to the well-studied phenomenon of inventor departure. Next, we show that the hiring of new key inventors in the post-M&A period can counteract these negative effects in two ways. First, these newly hired inventors increase corporate innovation performance after the M&A. Second, they improve the innovation performance of inventors already working for the acquiring firm. These results suggest that an appropriate hiring policy can counteract declining innovation performance of firms in the aftermath of M&As.