Mergers and Innovation: Evidence from a Panel of U.S. Firms

43 Pages Posted: 11 Jul 2016 Last revised: 22 Jul 2018

See all articles by Mahdiyeh Entezarkheir

Mahdiyeh Entezarkheir

University of Western Ontario - Huron University College

Saeed Moshiri

Saint Thomas More College University of Saskatcehwan

Date Written: June 27, 2016

Abstract

Mergers lead to larger firms and a less competitive market structure, but their effects on innovation are not clear. Mergers may improve innovation incentives by promoting economies of scope and scale, R\&D activities, and increasing the ability to deal with uncertainties. However, mergers may also discourage innovation by reducing competition, increasing costs, and decreasing production and R\&D efficiencies. In this study, we investigate merger impacts on innovation using a panel data consisting of four different data sets on publicly traded U.S. manufacturing firms from 1980 to 2003. Our proxy for innovation is based on citation-weighted patent stocks. In our estimation model, we control for endogeneity using instrumental variables and factors such as market share, size, industry, and time. We find that mergers are positively and significantly correlated with firms' innovation. Our findings also indicate that merger effect on innovation is heterogeneous across industries, increases with market share, and is greater in the long run. Our findings are robust to alternative measures of innovation.

Keywords: Merger, Patent, Anti-trust, Market Structure, Competition, Innovation, Citation, Intellectual Property

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

Suggested Citation

Entezarkheir, Mahdiyeh and Moshiri, Saeed, Mergers and Innovation: Evidence from a Panel of U.S. Firms (June 27, 2016). Available at SSRN: https://ssrn.com/abstract=2808061 or http://dx.doi.org/10.2139/ssrn.2808061

Mahdiyeh Entezarkheir (Contact Author)

University of Western Ontario - Huron University College ( email )

1349 Western Road
London, Ontario N6G1H3
Canada

Saeed Moshiri

Saint Thomas More College University of Saskatcehwan ( email )

1437 College Dr
Saskatoon, Saskatchewan S7N 0W6
Canada

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