The Real Options Value of Open Innovation Through Cross-border Mergers and Acquisitions: Evidence from Publicly Listed Firms in China

This study examines the impact of open innovation through cross-border mergers and acquisitions (M&A) on the real options value of Chinese publicly listed firms between 2008 and 2020. The findings demonstrate that open innovation through cross-border M&A has a positive effect on the upside potential and a negative effect on the downside risk of firm performance. Additionally, absorptive capacity and corporate governance play significant moderating roles in shaping the real options value of open innovation through cross-border M&A. These findings are robust across alternative measures of real options value and open innovation investments, sample classification based on institutional distance, and endogeneity tests. The research implies that cross-border M&A, particularly in countries with a favorable innovation environment, plays a crucial role in strengthening firm performance. Additionally, the study underscores the need for firms to develop absorptive capacity and enhance corporate governance as part of their innovation strategies.