With the gradual expansion of China's economy, the demand for innovation and growth of China’s companies is increasing. Traditional internal research and development (R&D) and iterative product and service development are no longer sufficient to meet the fierce market competition. More and more companies are seeking breakthrough growth of overall technology, brand, and service. Therefore, mergers & acquisitions (M&A) have become a common business activity for China’s companies. The motivation of company’s M&A is complex, and as M&A laws in China and worldwide become more complicated, how to make rational and rapid M&A that can achieve strategic upgrading of enterprises has become a research issue of concern for Chinese economic, financial, accounting, and legal disciplines, etc. As a basic industry, Chinese pharmaceutical industry has not yet taken a dominant position in the world. Due to the intertwining of multiple disciplines and complex background information, the impact of M&A transaction size on the innovation performance of pharmaceutical companies has yet to be studied.Focusing on the two hot spots: M&A and innovation, in the context of China's economic transformation and upgrading, this dissertation explores the impact of M&A on innovation based on the current situation analysis and theoretical analysis, and deeply studies and reveals the mechanism and effect of M&A transaction size on company innovation. 281 M&A data of 58 listed companies in China's healthcare industry from 2008 to 2017 was collected and regression analysis was performed to examine the impact of M&A transaction size on the innovation level of companies in terms of two aspects: the number of patent applications and the number of patents granted, and on three levels: invention patents, utility model patents and design patents. The results of the research show that: M&A transaction size promotes the growth of the number of patent applications and patents granted and has a significant positive effect on enterprise innovation; and M&A transaction size has contributed to the increase of the number of utility model patent applications and patents granted. In general, the innovation performance of M&A transaction size in utility model patents is better than that in invention patents with higher technological elements. Further mechanism examination results show that the innovation performance of a company after a bigger M&A transaction is influenced by its absorptive capacity: the stronger its absorptive capacity, the more opportunities it has to absorb and transform the technologies and knowledge of an acquired enterprise into its own. Through learning and imitation, it realizes the transformation and innovation of the technologies obtained through M&A, ultimately enhancing its innovation capability. / Business Administration/Finance