Financing Innovation Through Minority Acquisitions

40 Pages Posted: 14 Jan 2019

See all articles by Ibrahim Bostan

Ibrahim Bostan

Zayed University

Mariana Spatareanu

Rutgers University Department of Economics and Division of Global Affairs

Date Written: January 9, 2016

Abstract

The study investigates the role of minority equity purchases on the innovation activities of the US firms. We provide evidence of an increased innovation activity following minority equity purchases targeting firms with a small size patent portfolio prior to acquisition. Using a hand collected data we show that the positive effect of minority equity purchases is nonexistent when there is no simultaneous cash transfer to the target firm. Target firms in minority acquisitions increase their innovation while a matched sample of firms in the same industry with similar technological stock and having similar size show no increases in the innovation performance. We also show that firms which are financially constrained prior to the minority acquisition increase their innovation afterwards. The results are also consistent with the recent studies in minority and majority acquisitions showing that firms targeted in mergers and acquisitions (M&As) are financially constrained and that targets increase their investments in the post-acquisition period.

Keywords: innovation, finance, acquisitions

JEL Classification: G34

Suggested Citation

Bostan, Ibrahim and Spatareanu, Mariana, Financing Innovation Through Minority Acquisitions (January 9, 2016). Available at SSRN: https://ssrn.com/abstract=2713151 or http://dx.doi.org/10.2139/ssrn.2713151

Ibrahim Bostan (Contact Author)

Zayed University ( email )

P.O. Box 4783
Dubai
United Arab Emirates

Mariana Spatareanu

Rutgers University Department of Economics and Division of Global Affairs ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
973 353 5249 (Phone)
973 353 5819 (Fax)

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