Greening the deal: Can Mergers Redirect Innovation?

This paper examines how mergers and acquisitions (M&As) affect the direction of corporate innovation. Using data on U.S. M&A transactions from 1988–2015 matched with detailed patent data, we construct novel measures of changes in the technological orientation of acquirers based on patent text embeddings. We estimate dynamic treatment effects in a staggered difference-in-differences framework that compares merging firms to matched controls over a 17-year period, centered on the deal announcement year. We find a large and statistically significant shift in the acquirer’s innovation direction toward the target’s knowledge base post-deal. This positive effect is driven by deals between acquirers and targets that operate in technologically distinct domains. Using a subsample of deals involving targets that hold clean patents, we find that “dirty” acquirers—firms whose patent portfolios are concentrated in dirty technologies—show particularly strong post-deal shifts toward their target’s clean technologies, accompanied by increased citations to the target’s clean patents and increased clean patent filings by the acquirer. Overall, our results point to the potential for M&A to reshape innovation trajectories and mitigate against path dependencies.