Inventor Commingling and Innovation in Technology Startup Mergers & Acquisitions

David Hsu, Management, The Wharton School, Qingqing Chen, PhD Candidate in Business Economics, The Wharton School, and David Zvilichovsky, Coller School of Management, Tel Aviv University

Abstract: How does inventor team “commingling” (containing inventors from the acquiring and acquired firms) in technology startup acquisitions relate to innovation outcomes? Commingling reflects collaboration benefits and costs of integrating human resources across organizational boundaries. Commingled team innovation may also depend on the form of inter-organizational R&D, ranging from less (strategic alliance) to more integrated (M&A) structures. M&A control may aid innovation. We study technology startups experiencing a merger, some of which also had a prior alliance with the acquirer. Innovation outcomes (patent counts, forward citations, and patent scope) increase post-merger for firms with more intensive inventor commingling. We exploit direct flights between the M&A parties to instrument for endogenous commingling, and find robust results. Inventor-level commingling is more effective under M&A as compared to alliances.

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