How Do Technological Mergers and Acquisitions Affect Corporate Innovation? Evidence From China

ABSTRACT Using manufacturing firm‐level data from China over the period 2011–2018, we investigate how technological mergers and acquisitions (M&As) affect firm innovation. Our empirical results show that technological M&As can significantly improve innovation performance. Our results hold across various econometric specifications, including when technological M&As are instrumented with variables encapsulating the number of Christian colleges. However, this significant evidence applies mainly to non‐state‐owned, smaller, and high‐technology firms. The increase in innovation is significantly larger for firms located in cities with higher levels of fiscal decentralization, higher education, or foreign direct investment. Moreover, the size of an enterprise's knowledge base is an essential factor in adjusting the effect of technological M&As on corporate innovation. We also find that firms with a knowledge base have more incentives to innovate when facing technological M&As. This study provides a theoretical basis and a practical reference for enterprises to make better decisions regarding innovation.