Do Acquisitions Enrich Corporate Knowledge and Organizational Capital?

Abstract

We examine the impact of frequent acquisitions on the firm's knowledge capital and organizational capital. We find that frequent acquirers are more likely to have greater knowledge and organizational capital. Firms with higher knowledge capital are also likely to pursue more acquisitions, contrary to the current notion that firms deficient in R&D are more likely to pursue acquisitions. Our results suggest firms enhance exploration and exploitation capabilities through active acquisition programs. The greater a firm's absorptive capacity, the stronger the positive effects of the acquisition frequency on the knowledge capital and organizational capital. Our results suggest that frequent acquisitions decrease a firm's inertia, broaden its knowledge base, and enhance its core capabilities. We find that in-house R&D and externally acquired R&D via acquisitions are complements, not substitutes, contrary to the existing findings. Our results further suggest that firms with higher absorptive capacity (knowledge capital) are more likely to engage in frequent acquisitions.