Mergers and acquisitions (M&A) are a popular growth strategy. In just the full-year 2012, the value of global mergers and acquisitions totaled more than US$2.2 trillion, exceeding the GDP of countries like Canada or Italy. Therefore, and not surprisingly, management scholars have devoted tremendous efforts to examine the effects of M&A. Extant literature, however, is generally focusing on the firms directly involved in the deals, and says little about the competitive effects of M&A on rival firms in the market (Haleblian et al., 2009). This gap in the understanding of the full impact of M&A is problematic, precisely because M&A constitute such a widespread strategy, and because not considering the strategic effects of an organizational decision might provide a partialdor at times even an incorrectdpicture of the real consequences of this decision. As a simple example, consider Amgen’s recent acquisition of Onyx Pharmaceuticals. Robert A. Bradway, Chairman and CEO of Amgen commented: “Amgen’s acquisition of Onyx fits perfectly with our commitment to advancing medicines for cancer patients around the world. … We look forward to working together with the talented staff at Onyx to make the most of our exciting oncology portfolio and pipeline.” ۱ However, the eventual success of Amgen in this therapeutical market will depend not only on its actions and new product development efforts but also on the moves of direct competitors, which will likely not rest inert, but actively react to Amgen’s move. Hence, not considering the strategic effects of a decision d for the purposes of this paper, the acquisition of a firm d might lead to a dangerously incomplete analysis of the final impact of such decision.

However, extant literature has created only relatively small inroads into the domain of the strategic effects of M&A. Clougherty and Duso (2009) constitute a recent exception. They explore the impact of horizontal mergers on rival firms, and find that they generally experience positive abnormal stock price returns at the merger announcement date. The rationale proposed is that, on the one hand, mergers increase market power for every firm in a given market (and hence also for firms that do not merge, but at zero cost), and, on the other, to the extent that M&A might contribute destroying value for merging firms, rival firms can take advantage of this transitory distress. Building on this latter idea, the present study contributes to the debate on the competitive effects of M&A by investigating their impact on rivals’ innovation strategy.

ate on the competitive effects of M&A by investigating their impact on rivals’ innovation strategy. M&A have become increasingly frequent in technology-based industries (e.g., Heeley et al., 2006; Inkpen et al., 2000), and prior literature (e.g., Cassiman and Colombo, 2006; Hitt et al., 1996; Valentini, 2012) has shown that M&A change merging firms’ innovation strategy. If in research-based industries firms decide their innovation strategy also on the basis of the expected or observed behavior of their competitors d that is, if strategic interactions in R&D exist (e.g., Lerner, 1997) d then we should expect that a change in merging firms’ strategy should be associated with a shift in the strategy of merging firms’ competitors, too. Exploring whether such a shift exists e and if so in which direction e is the goal of this study.