66 Pages Posted: 18 Dec 2010 Last revised: 29 Jul 2014
Date Written: December 3, 2011
Using a large unique patent-merger dataset over the period 1984-2006, we uncover one specific source of synergies - corporate innovation activities - that drives acquisitions. Our measures of corporate innovation capture both quantity and quality of innovation output, as well as the extent of asset complementarities that stem from technological overlaps between merger partners. We first show that more innovative companies are more likely to be acquirers, while less innovative companies are more likely to be acquired. Further, the existence of technological overlaps between any two firms has a positive and significant effect on merger pair formation. We then show that mergers are more likely to take place between firms with either technological or product market synergies, but less likely when both are present. Finally, using a quasi-experiment of failed merger bids, we show that acquirers with prior technological linkage with their target firms produce significantly higher innovation output after the merger. We conclude that technological overlaps are an important source of synergies behind corporate acquisitions.
Keywords: Asset complementarities, innovation, mergers and acquisitions, synergies, technological overlaps
JEL Classification: G34, O32
Suggested Citation: Suggested Citation
Bena, Jan and Li, Kai, Corporate Innovations and Mergers and Acquisitions (December 3, 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1727401 or http://dx.doi.org/10.2139/ssrn.1727401