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

Christoph Grimpe (), Katrin Hussinger and Wolfgang Sofka ()
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Christoph Grimpe: CBS, DK - ZEW, DE
Wolfgang Sofka: CBS, DK - University of Liverpool, UK

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

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

Keywords: firm acquisitions; local embeddedness; localized knowledge; patents; knowledge relatedness. (search for similar items in EconPapers)
JEL-codes: G34 O3 P48 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ino, nep-knm, nep-sbm and nep-ure
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