Financing Innovation Through Minority Acquisitions
40 Pages Posted: 14 Jan 2019
Date Written: January 9, 2016
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: Suggested Citation