Acquisitions and their effect on start-up innovation

This paper highlights a critical issue in the innovation ecosystem ‒ whether acquisitions of start-ups by incumbent firms foster or stifle innovation. Using a unique firm-level dataset covering 60 countries for the period 2001-2021, the study finds that acquisition targets are highly innovative before the deal, and acquirors are generally innovation-oriented firms. Acquired start-ups are also technologically close to their acquirors and often share the same industries and countries, suggesting potential market synergies. However, post-acquisition, start-up patenting declines without a corresponding increase in the acquiror's innovation activity, raising concerns that such deals may serve anti-competitive purposes rather than enhancing innovation.