Negative consequences of being acquired on new product quality: Evidence from US medical device industry

Technology acquisition is a widely used strategy for firms to access new technologies and enhance their innovation outcomes. However, existing literature primarily focuses on the post-acquisition innovation outcomes of the acquiring firm, neglecting the potential impact on the innovation outcomes of the acquired firm. This research aims to address this gap by investigating the post-acquisition new product quality at acquired firms. We argue that the acquisition process can introduce coordination problems in the innovation process and routines of the acquired firm, leading to a higher likelihood of new product failure. To test our hypotheses, we examine the U.S. medical device industry as our empirical setting. Through product-level analyses, we find evidence supporting our claim that products introduced by acquired firms are more prone to experience product failure. Furthermore, we identify specific conditions under which these coordination problems are mitigated or intensified. These conditions include the relatedness of the acquiring and acquired firms' technologies, the incorporation of the acquiring firm's product component into the acquired firm's new product, the retention of the acquired firm's CEO after the acquisition, and the acquiring firm's prior acquisition experiences. To strengthen the robustness of our findings, we employ various analytical approaches, including two-stage instrumental variable analyses and Heckman method.