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The ability of the firm to effectively use external knowledge (its absorptive capacity) is important to firm competitiveness and innovativeness. However, the wide array of approaches to studying absorptive capacity has obscured our understanding of what drives the effective use of external knowledge. The authors show that absorptive capacity is composed of mutliple dimensions: (a) the firm’s relationship to its external environment; (b) the structure, routines, and knowledge base of the main value creation group(s); and (c) individuals’ absorptive abilities. Their data illustrate that each of these dimensions contributes to increased knowledge or knowledge creation activities.

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R&D investments contribute to the development of firm technology resources, and the possession of such resources often increases a firm's attractiveness as a potential acquisition target. However, the value ascribed to a firm's technology resources by would-be acquirers may be moderated by its industry's environmental characteristics. Using data from 2886 firms, we find that investments in R&D predict acquisition likelihood and that R&D investments are most strongly associated with acquisition of firms under conditions of high environmental munificence and dynamism. Theoretical and managerial implications are discussed. Copyright Blackwell Publishing Ltd 2006.