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Reaching beyond the acquirer-Target Dyad in M&A – Linkages to External knowledge sources and target firm valuation
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Reaching beyond the acquirer-Target Dyad in M&A – Linkages to External knowledge sources and target firm valuation

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  • Christoph Grimpe

    (CBS, DK - ZEW, DE)

  • Katrin Hussinger

    (DEM, Université du Luxembourg)

  • Wolfgang Sofka

    (CBS, DK - University of Liverpool, UK)

Abstract

Access to unique knowledge of a target firm is the strategic rationale for many firm acquisitions with the expectation of improving the acquirer’s innovation performance. We argue that the ac- quisition price reflects opportunities for value creation through innovation and investigate whether acquirers pay not just for the target firm’s knowledge but also for the opportunity to access local- ized knowledge when targets are embedded in the knowledge flows of their region. Accordingly, we integrate embeddedness theory with literature on the expectations for knowledge-based value creation in M&A. We hypothesize that target firms that are highly embedded in local knowledge flows have higher acquisition prices. Using data on 520 technology-oriented firm acquisitions in Europe between 2001 and 2010, we find that the acquisition price increases with the target firm’s local embeddedness. The effects are weaker when an acquirer’s knowledge base is closely related to the localized knowledge and stronger when the target’s knowledge base is closely related to the localized knowledge, suggesting that local embeddedness conditions the ability of acquirer and

Suggested Citation

  • Christoph Grimpe & Katrin Hussinger & Wolfgang Sofka, 2023. "Reaching beyond the acquirer-Target Dyad in M&A – Linkages to External knowledge sources and target firm valuation," DEM Discussion Paper Series 23-01, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:23-01
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    References listed on IDEAS

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    More about this item

    Keywords

    firm acquisitions; local embeddedness; localized knowledge; patents; knowledge relatedness.;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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