Innovation Disclosures and the Design of Technology Acquisition Contracts: Evidence from the American Inventors Protection Act

Jeffrey J. Reuer (), Sandip Bisui () and George Chondrakis ()
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Jeffrey J. Reuer: Mitchell E. Daniels, Jr. School of Business, Purdue University, West Lafayette, Indiana 47906
Sandip Bisui: Mitchell E. Daniels, Jr. School of Business, Purdue University, West Lafayette, Indiana 47906
George Chondrakis: Department of Strategy and General Management, ESADE Business School, Sant Cugat, 08172 Barcelona, Spain

Strategy Science, 2025, vol. 10, issue 1, 68-92

Abstract: Material adverse change (MAC) clauses and contingent earnouts are important contractual mechanisms used to protect acquirers from the risk of adverse selection. Yet, the extant literature has not sufficiently explored the antecedents of their use, in particular within the context of technology acquisitions. In this study, we take advantage of the passage of the American Inventors Protection Act (AIPA), which disseminated information through the publication of patent applications, to explore the impact of innovation disclosures on the design of technology acquisition contracts. Consistent with the view that an increase in the availability of information related to the broader technological landscape reduces the need for contractual protections in acquisition contracts, our analysis demonstrates that deals disproportionately affected by AIPA have less expansive MAC clauses and are less likely to feature contingent earnouts. These results provide new evidence linking the use of MAC clauses and earnouts with acquisitions subject to information frictions.

Keywords: acquisitions; contracts; technology ventures; innovation disclosure; adverse selection (search for similar items in EconPapers)
Date: 2025
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