Digital (Killer?) Acquisitions

Abstract

This paper examines the effects of over 1,000 acquisitions by major technology firms on innovation. Using detailed patent and workforce data linked to technology acquisitions and a suite of event-study and difference-in differences designs, we document four main findings. First, although most acquired startups hold no patents, those with patents tend to operate in technology areas where the acquirer already has a presence and which subsequently experience further acquisition activity. Second, innovation typically rises before an acquisition but only persists afterward when follow-on acquisitions occur, suggesting that acquisitions reinforce rather than reverse innovation trends. Third, at the patent level, acquired patents receive significantly more citations after the acquisition than comparable patents, and these effects are not driven solely by self-citations from the acquiring firm. These post-acquisition citation effects are smaller when more employees from the acquired firm are retained, consistent with innovation spillovers occurring through employee mobility. Fourth, we document significant workforce attrition exceeding 60% on average at target firms three years post-acquisition. Our results suggest that acquisitions by digital incumbents often amplify, rather than suppress, the diffusion and visibility of acquired technologies.