This paper investigates the impact of peers’ Mergers and Acquisitions (M&A) activities on the innovation strategy of firms that are not directly involved in these transactions. We find that while peers’ M&A activities positively affect a firm’s exploratory innovation, they adversely influence its exploitative innovation. This dynamic is predominantly driven by peer firms acting as acquirers. We further explore two mechanisms: the learning effect and the competition effect. With regard to the learning effect, the relationship between peer acquirers and exploratory innovation is more pronounced when these peer acquirers merge with their own competitor firms (horizontal M&A) and when they possess a strong absorptive capacity, enabling them to leverage value from acquisitions more effectively. In terms of the competition effect, the link between peer acquirers and exploratory innovation is stronger amid high competition intensity and technological peer pressure. Moreover, we find that the negative relationship between acquirers and outsider firms’ exploitative innovation becomes more pronounced particularly under high technological peer pressure.
