The Outsourcing of R&D through Acquisition in the Pharmaceutical Industry
Matthew John Higgins
Scheller College of Business, Georgia Institute of Technology; National Bureau of Economic Research (NBER)
Emory University - Department of Organization & Management
Journal of Financial Economics, Vol. 80, 2006
We examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns. These returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position. A unique Desperation Index is employed to determine the current status of a firm's internal productivity. We find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing-type acquisition in an effort to replenish their research pipelines.
Keywords: Acquisitions, Asymmetric information, Pharmaceutical industry
JEL Classification: G34, D82Accepted Paper Series
Date posted: August 8, 2006
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