Is Innovation a Factor in Merger Decisions? Evidence from a Panel of U.S. Firms

40 Pages Posted: 11 Jul 2016 Last revised: 21 Jul 2018

Mahdiyeh Entezarkheir

University of Western Ontario - Huron University College

Saeed Moshiri

Allameh Tabatabaei University - Economics; Saint Thomas More College University of Saskatcehwan

Date Written: June 22, 2018

Abstract

The impact of innovation on mergers has been a subject of debate in merger enforcements. Firms may decide to merge because of increasing market share and expanding capacity. However, mergers may also be motivated by innovation since they provide resources for commercialization of innovation and allow for capturing knowledge spillovers. There are myriad studies on the drivers of mergers, but empirical evidence on innovation-induced changes of merger likelihood is limited. In this paper, we construct a panel data set of mergers among publicly traded U.S. manufacturing firms from 1980 to 2003 and investigate the impact of innovation on merger decisions controlling for business cycles and proxies of neoclassical, behavioural and Q theories of mergers. Our measure of innovation is based on the citation-weighted patent stock. We find that innovations are positively and significantly correlated with firms' merger likelihood. Our results on the control variables, such as business cycles, Tobin's q, and market shares, are also consistent with those reported in the literature. We also find that the magnitude of the merger impact of innovation varies across industries. Our main result is robust to alternative measures of innovation and different estimation methods.

Keywords: Merger, Innovation, Business Cycle, Anti-trust, Competition, Patent

JEL Classification: L12, L22, L40, L44, L60, O31, O34

Suggested Citation

Entezarkheir, Mahdiyeh and Moshiri, Saeed, Is Innovation a Factor in Merger Decisions? Evidence from a Panel of U.S. Firms (June 22, 2018). Available at SSRN: https://ssrn.com/abstract=2808059 or http://dx.doi.org/10.2139/ssrn.2808059

Mahdiyeh Entezarkheir (Contact Author)

University of Western Ontario - Huron University College ( email )

1349 Western Road
London, Ontario N6G1H3
Canada

Saeed Moshiri

Allameh Tabatabaei University - Economics ( email )

Saint Thomas More College University of Saskatcehwan ( email )

1437 College Dr
Saskatoon, Saskatchewan S7N 0W6
Canada

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