53 Pages Posted: 31 Mar 2013 Last revised: 3 Mar 2017
Date Written: February 28, 2017
We examine vertical integration through acquisitions and organic changes in production using new firm-specific measures of vertical relatedness and integration from 10-K product text. We find that firms in R&D intensive industries are less likely to become targets in vertical acquisitions or vertically integrate. These findings are consistent with firms with unrealized innovation staying separate to maintain ex ante incentives to invest in intangible assets and retain residual rights of control. In contrast, firms in industries with more patented innovation are more likely to vertically integrate, consistent with ownership facilitating commercialization after innovation is realized to reduce ex post holdup.
Keywords: Mergers and Acquisitions, Vertical Mergers, Vertical Integration
JEL Classification: G34
Suggested Citation: Suggested Citation
Frésard, Laurent and Hoberg, Gerard and Phillips, Gordon M., Innovation Activities and the Incentives for Vertical Acquisitions and Integration (February 28, 2017). Available at SSRN: https://ssrn.com/abstract=2242425 or http://dx.doi.org/10.2139/ssrn.2242425