The allocation of resource control within the corporate structure: Evidence from post‐acquisition patent reassignments

Abstract Research Summary This study explores the decision to centralize control over technological resources. We posit that opportunity costs arising from the firm's administrative structure impact this choice. These opportunity costs stem from differences in identifying and evaluating opportunity sets between the unit level (decentralized) and headquarters level (centralized). We propose that a resource's versatility increases the opportunity costs associated with decentralized control, thereby raising the likelihood of its control being centralized. Using a sample of patents acquired through corporate acquisitions in the medical device industry, we find that patents with greater technological and product‐market versatility are more likely to be reassigned to the central level. These findings contribute to elucidating the interplay between resources, strategy, and structure. Managerial Summary In the process of integrating a newly acquired firm, acquirers must decide whether to retain the resources within the acquired subsidiary or reallocate them to the headquarters. Decentralizing resources enables managers at the divisional level to spot, sort, select, and seize opportunities in their specific product‐market domains. However, centralizing resources can help exploit opportunities with a broad scope, spanning across divisions. The key consideration is determining which resources should be centralized after an acquisition? Analysis of data on 507 US acquisitions in the medical device industry undertaken between 1996 and 2015 reveals that acquirers tend to centralize versatile technological resources, especially when the acquirers themselves have a diverse technological base.