R&D and the Incentives from Merger and Acquisition Activity

65 Pages Posted: 27 Nov 2012

See all articles by Gordon M. Phillips

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Alexei Zhdanov

Pennsylvania State University

Multiple version iconThere are 2 versions of this paper

Date Written: August 15, 2012

Abstract

We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence also shows that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.

Keywords: mergers, innovation, R&D

JEL Classification: O31, O32, G34, D43, L13

Suggested Citation

Phillips, Gordon M. and Zhdanov, Alexei, R&D and the Incentives from Merger and Acquisition Activity (August 15, 2012). Available at SSRN: https://ssrn.com/abstract=2181152 or http://dx.doi.org/10.2139/ssrn.2181152

Gordon M. Phillips (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexei Zhdanov

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

HOME PAGE: http://www.alexeizhdanov.com

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