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Acquiring Innovation

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

May 24, 2012

AFA 2012 Chicago Meetings Paper

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

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Date posted: December 28, 2010 ; Last revised: October 26, 2014

Suggested Citation

Sevilir, Merih and Tian, Xuan, Acquiring Innovation (May 24, 2012). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1731722 or http://dx.doi.org/10.2139/ssrn.1731722

Contact Information

Merih Sevilir (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

Xuan Tian
Tsinghua University - PBC School of Finance ( email )
No. 43, Chengfu Road
Haidian District
Beijing 100083
+86-10-62794103 (Phone)
HOME PAGE: http://xuantian.info/
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