Post Merger Innovative Patterns in Small and Medium Firms

This paper investigates whether involvement in mergers and acquisitions (M&As) triggers distinct patterns of innovative behaviour across firms situated at different points on the firm size distribution. Firms use more and more M&As as mechanisms to bridge the gap between where they are and what they want to achieve in terms of innovation and performance. We explore the different impact of M&A activity on the likelihood that firms begin to innovate using an unique dataset combining innovation and economic firm-level data from two different sources: the 4 waves of Community Innovation Survey and the Business Register, for the Dutch manufacturing sector. The analysis is carried out at different size classes. The results show that both new entry and persistence in innovative activities are fostered by M&A involvement. Medium firms are the ones showing the highest probabilities of entering /persisting in innovative activities after M&As. For small firms, M&As do not ease the overcome of “the innovative threshold”; on the contrary they seem to increase the probability of exiting innovative status in the post-merger period.Mergers and acquisitions; innovation; small and medium enterprises; transition probabilities; probit models