Mergers and Innovation: An Exploration of Scope and Direction of Innovation

Abstract

How do mergers change the scale and composition of firm innovation? We study U.S. public-public mergers from 1980 to 2020 using combined acquirer-target patent portfolios. A compact framework isolates business stealing, knowledge pooling, and activation, and keeps product-market overlap distinct from technological overlap. We compare treated merger pairs to matched control pairs before and after the deal. On the matched sample, joint-portfolio scope is larger after mergers, by about 0.18 on the annual measure. The difference is larger when pre-merger technologies overlap, especially among non-horizontal deals. Joint portfolios also show higher alignment with highly cited patents.