Why Some Acquisitions Do Better Than Others: Product Capital as a Driver of Long-Term Stock Returns

Corporate acquisitions are strategic actions that loom large in the minds of many senior managers. Despite decades of study, little systematic research exists on a central question: Why do the acquisitions of some firms perform better than those of others? The work that has examined this question has mostly focused on deal-specific variables (i.e., how the acquisitions are conducted). In this article, the authors highlight a firm-specific, marketing-driven variable—namely, product capital—that affects acquisition performance and predicts which firms are better positioned to acquire in the first place. The authors also present a mechanism by which product capital affects performance— namely, through acquirers' superior selection and deployment of targets' innovation potential. This article shows that firms with high product capital (i.e., those with greater product development and support assets) make smarter acquisition decisions. Such firms are better at selecting targets with innovation potenti...