Fast or Furious? Acquisition of Innovation on Product Recall in High- Technology Industries

Abstract

Externally acquired new technology is an important resource in innovation and new product development in high-technology industries. Although the importance of balancing between external acquisition and internal development has been well documented, there has been little empirical research on the impact of an acquisition decision on new product development and its management. Are there any negative impacts of acquisitions made to obtain new innovative products from the external market? Do acquiring firms have thorough understandings of the technological features of the new products they acquire? Applying firm- and product-level analyses regarding acquisitions and product recalls in the U.S. medical device industry, we find evidence that a firm that engages in more acquisition activity experiences more product recall incidents but that the quality failure is more common when the acquiring firm is larger and when their investments in R&D are larger. Moreover, our data shows that a new product from an acquired firm is more likely to have product defects but that the hazard of product recall decreases when the technology domain of the acquirer and the target is the same. In addition, the resolution of product recall takes more time when the product is obtained via acquisitions.