| This doctoral thesis draws on the financial economics, strategic management, product innovation, and health technology literatures to investigate and explain conditions under which corporate acquisitions in the medical device industry have enhanced or eroded shareholder wealth and financial accounting performance. Specifically, the research aims to advance understanding of (a) the economic impact of externally sourcing product innovation capability via corporate acquisitions, (b) the distinction and use of patent awards, premarket application (PMA) approvals, and 510(k) clearances as indicators of innovation capability among medical device manufacturers, (c) similarities and differences in predictor variables of short-run (stock market reaction to acquisition announcement) versus longer-term (four years of post-acquisition cash flow performance) acquisition-related financial outcomes, and (d) financial results of other motives for acquisition activity (e.g., buying or selling corporate assets as a response to organizational distress). The results indicate that, on average, shareholders benefited from acquisitions among medical device makers. The correlation coefficient between the shortrun and longer-term dependent variables was .36 (p < .0001). Multivariate analyses demonstrate that buying innovation capability via corporate acquisition is, overall, a value-creating strategy among medical device makers. The strongest predictors of shareholder wealth creation and improved financial accounting performance were (a) the target organization's pre-acquisition product innovation record, (b) the interaction of acquirer and target innovation measures (indicating that the overall impact of product innovation capability on financial outcomes is jointly determined), and (c) purchasing inefficiently producing and financially distressed targets. The short-run and longer-term models also agreed that being a high-frequency acquirer was a value-destroying approach. Stock price increases were further related, although more marginally, with acquiring the entire target firm (compared with purchasing only a portion of the target's assets such as a division or product line) and use of cash as a method of payment. Shareholder wealth diminution followed announcement of acquisition targets with (a) high 510(k) clearance counts relative to R&D expenditures (indicating a non-innovative target organization) and (b) collar provisions on high-technology acquisitions. Unlike short-run stock price revaluations, positive changes in longer-term financial accounting performance were associated with building product lines within medical specialty areas. |
