Abstract: Integrating external resources and improving innovation performance through M&As is an important tool for corporates to gain a competitive advantage. In this paper, the role of product similarity in decision-making and integration stages of M&As is revealed. It is put forward that product similarity on the one hand alleviates information asymmetry between the acquirer and the target and thus facilitates the selection of suitable targets for the acquirer; and on the other hand it promotes deep integration after M&As, which in turn improves the innovation performance of the acquirer. Based on the data of China’s A-shared manufacturing listed companies from 2009 to 2019, product similarity was measured based on textual analysis and an empirical analysis was conducted using the conditional logit model and the negative binomial regression model. Results indicate that the higher the product similarity between the acquirer and the target, the more likely M&As happen; after M&As, product similarity increases the acquirer’s innovation performance, which is facilitated by the “knowledge absorption effect”, “financing constraint smoothing effect” and “market pressure hedging effect”.