Innovation Activities and Integration through Vertical Acquisitions

Review of Financial Studies, Forthcoming

Swiss Finance Institute Research Paper No. 19-36

79 Pages Posted: 31 Mar 2013 Last revised: 13 Jul 2019

See all articles by Laurent Frésard

Laurent Frésard

Universita della Svizzera italiana (USI Lugano); Swiss Finance Institute

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Gordon M. Phillips

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

Date Written: May 1, 2019

Abstract

We examine the determinants of vertical acquisitions 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. R\&D-intensive firms are less likely to become targets in vertical acquisitions. In contrast, firms with patented innovation are more likely to sell to vertically-related buyers. Firms' R&D intensity is a more important deterrent to their vertical acquisitions when the provision of innovation incentives by potential acquirers is more difficult. The role of patents in fostering vertical acquisitions is more prevalent when potential buyers face a higher risk of hold-up.

Keywords: Mergers and Acquisitions, Vertical Mergers, Vertical Integration

JEL Classification: G34

Suggested Citation

Frésard, Laurent and Hoberg, Gerard and Phillips, Gordon M., Innovation Activities and Integration through Vertical Acquisitions (May 1, 2019). Review of Financial Studies, Forthcoming; Swiss Finance Institute Research Paper No. 19-36. Available at SSRN: https://ssrn.com/abstract=2242425 or http://dx.doi.org/10.2139/ssrn.2242425

Laurent Frésard

Universita della Svizzera italiana (USI Lugano) ( email )

Lugano, 900
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

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

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

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