Absorptive Capacity and the Propensity for Knowledge-Seeking Acquisitions

Abstract

Knowledge-seeking acquisitions (KSAs) provide significant advantages to firms with insufficiently developed knowledge bases. Yet such firms’ lack absorptive capacity (ACAP), which impedes absorption of external knowledge sourced through KSAs. We take advantage of variance in acquisition motivations (e.g., KSAs, market-seeking acquisitions) to examine the propensity of such firms for KSAs. Drawing on ACAP research, we theorize that such firms direct their internal investments to develop potential ACAP (PACAP), that is, to develop knowledge identification and assimilation capabilities. Thus, such firms’ greater internal research and development (R&D), increasing PACAP, increases their propensity for KSAs. Low knowledge identification costs and high knowledge assimilation capabilities reduce internal investments for PACAP and thus reduce the positive effect of internal R&D on KSA propensity. Analyses of foreign acquisitions by Taiwanese high-technology follower firms over 2001- 2008 supports our theory. We contribute to research on how firms upgrade their knowledge bases through external knowledge sourcing.