Learning How Others Learn: Target Firm Knowledge Spillover and Post-Acquisition Knowledge Leverage

If knowledge spillover benefits industry bystanders at the expense of the original innovators, why do firms still acquire the technology of target firms that are already widely utilized by others? In high-tech industries, being different is the very reason for survival that provides value and positional advantage to firms. However, it is also the same reason that increases heterogeneity among firms, which limits the ability of acquiring firms to leverage acquired knowledge. Under this circumstance, other firms successfully applying target knowledge provide acquiring firms with opportunities to observe how the focal technology can be utilized. Using technology acquisitions of U.S. firms in highly innovative industries, we find that knowledge spillovers from target firms before an acquisition enhance post-acquisition knowledge leverage activities for acquiring firms. Furthermore, acquiring firm’s prior experience in utilizing acquired knowledge diminishes the value of the knowledge spillovers. In contrast, knowledge similarity between acquiring and recipient firms increases the value of the knowledge spillover to acquiring firms. These findings show that the pre-acquisition spillover activities of target firms can be considered as vicarious learning opportunities for acquiring firms to create new knowledge after an acquisition.