Innovation Activities and the Incentives for Vertical Acquisitions and Integration

53 Pages Posted: 31 Mar 2013 Last revised: 3 Mar 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: February 28, 2017

Abstract

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

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

Laurent Frésard (Contact Author)

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

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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