When does it pay off to participate in markets for technology?

This paper examines the contribution of different technology acquisition strategies to the market value of firms. I exploit a large consolidated dataset on publicly listed US-firms to distinguish between the contributions of patented inventions that these firms acquired via acquisitions of other firms – embodied technology acquisition – and via the outright purchase of standalone technology – disembodied technology acquisition. I develop hypotheses relating firms ability to benefit from both strategies to the size of their internal knowledge stock and their degree of familiarity with the acquired technology. In line with my predictions, I find a positive contribution of embodied technology acquisition on market value, which increases with the size of firms’ internal knowledge stock as well as their familiarity with the acquired technology. Contrary to my predictions, I find a negative contribution of disembodied technology acquisition, except for firms having the largest internal knowledge stocks in my sample. Interestingly, my results reveal that firms are most likely to benefit from the acquisition of familiar technology via the embodied mode whilst at the same time indicating that the negative association between market value and the acquisition of standalone technology is most pronounced when this technology is novel to the acquiring firm. Overall, my findings suggest that the benefits associated with acquiring technology from external sources are only realized when firms possess a minimum degree of absorptive capacity, with the minimum needed to benefit from technology acquisition being significantly higher for technology acquired via the disembodied mode.