This research examines an integrated theoretical model that explains h
ow strategies for participating in the market for corporate control (a
cquisitions and divestitures) affect internal control mechanisms and,
together, influence internal and external innovation. Nine out of ten
hypotheses received support, with results showing that firms engaging
in acquisitions and divestitures emphasize financial controls, deempha
size strategic controls, and thereby produce less internal innovation.
Furthermore, these firms are likely to seek external innovation to ga
in short-term benefits in competitive advantage. We conclude that enga
ging in the market for corporate control strongly affects the context
in which innovation is framed, the control mechanisms employed, and th
e design and process of innovation.