Essays on mergers and acquisitions and innovation
Abstract
This thesis consists of two essays that explore the impact of mergers and acquisitions on ex-post innovation outcomes of the emerging entity and investigate possible sources of synergistic gains. The first essay analyzes the impact of acquisitions on innovation in a high-technology industry employing the fixed effects negative binomial modeling approach. Consistent with the efficiency gains argument, I show that merging firms generate more useful knowledge at a lower cost after the acquisition. Further, acquisitions involving a large and a small firm, compared to any other combination, produce the highest number, as well as the most widely cited set, of patents. Finally, among merging firms, complementarity of ex-ante innovative agendas fosters a higher level of innovation after the acquisition. Results are economically large and robust to numerous sensitivity checks. In the second essay, I investigate the implications of acquiring an innovative target for acquirers' discounted expected future cash flows by studying stock market reactions to acquisition announcements. Consistent with the hypothesis that acquiring an innovative target improves the innovative standing of the acquirer, I find that acquisitions involving innovative targets result in statistically significant and positive cumulative abnormal returns for acquirers compared to acquisitions involving non-innovative targets. In comparison with acquiring a non-innovative target, acquiring an innovative one leads to about 4% more in excess returns to the acquiring firm during a five-day window around the event. I then show that these abnormal returns are not simply due to obtaining the patent portfolios of target firms. Instead, the difference is largely due to the expectations of potential synergistic innovative gains. Acquisitions bringing together two firms with ex-ante complementary innovative agendas accrue about 6% more in excess returns over the five-day window around the event compared to acquisitions involving firms of perfectly substitutable innovative agendas. The results are robust to various sensitivity checks.
Degree
Ph.D.
Advisors
Martin, Purdue University.
Subject Area
Finance|Economic theory
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