Download this Paper Open PDF in Browser

Acquiring Innovation

45 Pages Posted: 28 Dec 2010 Last revised: 26 Oct 2014

Merih Sevilir

Indiana University - Kelley School of Business - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: May 24, 2012

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.

Keywords: Mergers and Acquisitions, Innovation, Patents, Research and Development

JEL Classification: G34, O31, O32, G24

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

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
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Paper statistics

Downloads
1,230
Rank
12,788
Abstract Views
7,576