Technology acquisition following inventor exit in the biopharmaceutical industry

In technological acquisitions, a "focal" firm aiming to appropriate the technological knowledge of another "alter" firm faces information asymmetries in imperfect strategic factor markets. Little is known about whether the mobility of people between the firms may reduce this information asymmetry and contribute to an increased likelihood of an acquisition. To investigate this question, we argue that for an actively acquiring firm, inventorexit to an alter firm increases the likelihood of acquisition because it helps identify an acquisition target. In addition, since an acquiring firm is more likely to have information about a potential target with more technological capital, inventor-exit is less likely to reduce information asymmetries and to increase chances of an acquisition. Based on an analysis of acquisitions between firms in the period between 1993 and 2010 in the global biopharmaceutical industry, we find support for these arguments. For an active acquirer firm, inventor exit increases the likelihood of acquisition of the alter (hiring) firm by 335% as compared to an acquisition of randomly selected alter firm. Moreover, the positive effect of inventor-exit on the likelihood of acquisition is negatively moderated by the technological capital of the alter firm. A policy implication is to treat non-compete clauses with caution because they may impede the reduction of information asymmetry that follows from inventor-exit and reduce the likelihood of some acquisitions eventually.