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Vertical Acquisitions, Integration and the Boundaries of the Firm

55 Pages Posted: 31 Mar 2013 Last revised: 17 Sep 2017

Laurent Frésard

University of Maryland - Robert H. Smith School of Business

Gerard Hoberg

University of Southern California - Marshall School of Business

Gordon M. Phillips

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

Date Written: September 15, 2017

Abstract

We examine vertical acquisitions and integration using product text linked to product vocabulary from the input-output tables. We find that the stage of innovation is important in understanding vertical integration. Firms in R&D intensive industries are less likely to become targets in vertical acquisitions or to vertically integrate, 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 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

Frésard, Laurent and Hoberg, Gerard and Phillips, Gordon M., Vertical Acquisitions, Integration and the Boundaries of the Firm (September 15, 2017). Available at SSRN: https://ssrn.com/abstract=2242425 or http://dx.doi.org/10.2139/ssrn.2242425

Laurent Frésard

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Gerard Hoberg

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Gordon M. Phillips (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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