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Acquiring InnovationMerih SevilirIndiana University - Kelley School of Business Xuan TianIndiana University - Kelley School of Business May 24, 2012 AFA 2012 Chicago Meetings Paper Abstract: We find a positive relation between mergers and acquisitions (M&A) activity of a firm and its subsequent innovation outcome measured by the number and the novelty of the patents the firm obtains. The positive relation between M&A activity and innovation appears at least as significant as that between R&D and innovation. To identify causality between M&A activity and innovation, we compare the innovation output of failed acquirers to that of successful acquirers and find that failed acquirers obtain fewer patents and patents with lower impact relative to successful acquirers. Acquiring innovative target firms with existing patents is positively related to acquirer abnormal returns at announcement as well as acquirer’s long-term stock return performance after deal completion. Overall, our paper uncovers a previously undocumented role of M&A and suggests that acquiring innovation is an important motive for undertaking M&A.
Number of Pages in PDF File: 45 Keywords: Mergers and Acquisitions, Innovation, Patents, Research and Development JEL Classification: G34, O31, O32, G24 working papers seriesDate posted: December 28, 2010 ; Last revised: September 3, 2012Suggested CitationContact Information
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