Evidence of Innovation Synergies

Patterns of patents' backward citations were used to test a new patent-score measure that suggested whether post-acquisition synergies had been realized (based on improvements in firms' patent scores after making acquisitions). We argue that where firms' post-acquisition patent scores showed that a broader range of non-core knowledge had been synthesized by working together afterward than had occurred before the acquisition, multiplicative innovation synergies were realized ― which improved firms' financial performance. Additional test results suggested that highly-diversified firms did not necessarily enjoy the type of post-acquisition innovation synergies that were found in this study; our measure indicated that less-broadly diversified firms enjoyed greater multiplicative innovation synergies (as they were defined herein) than did the more-broadly diversified firms