Product Differentiation in IT Industries: The Interplay between M&As and In-House Innovation and Exploitative Innovation Orientation
Authors: Qi, Kangkang; Han, Sumin; Jeong, Yeasung; Rhamati, Pouya; Susarla, Anjana; Sambamurthy, Vallabh
Journal: Journal of the Association for Information Systems (2023)
DOI: 10.17705/1jais.00828
<jats:p>Firms in IT industries are under constant competitive pressure from incumbent firms and startups to offer innovative products and services. This study explores the effect of mergers and acquisitions (M&As) on firms’ product differentiation in IT industries. The unique characteristics of IT industries, namely hypercompetition, distributed innovation, modularity of products, and the tacit nature of knowledge, make M&As an attractive mechanism to enable IT firms to stay competitive. Drawing on product differentiation theory, we hypothesize a positive effect of M&As on product differentiation and suggest that this relationship is more potent in firms with higher in-house innovation, an exploitative innovation orientation, and under high levels of industry turbulence. We test our hypotheses using M&A transactions from 1996 to 2016 and a unique 10-K textual analysis-based measure of product differentiation. Using the difference-in-differences identification strategy, the following findings are supported: (1) M&As lead to higher product differentiation, (2) in-house innovation capability and exploitation-oriented innovation strategy positively moderate the positive effect of M&As…