Corporate Innovation, Likelihood to be Acquired, and Takeover Premiums

52 Pages Posted: 16 Aug 2019 Last revised: 11 Sep 2019

See all articles by Szu-Yin (Jennifer) Wu

Szu-Yin (Jennifer) Wu

State University of New York, University at Buffalo

Kee H. Chung

State University of New York at Buffalo - School of Management

Date Written: September 9, 2019

Abstract

We analyze the effect of a firm’s innovation activities on its likelihood to be acquired and the takeover premium using a large sample of M&A transactions. We show that firms with larger innovation outputs and R&D investments are more likely to be acquired, receive unsolicited bids, and receive multiple bids. The takeover premium increases with the target firm’s innovation output, and this positive relation is stronger when there are more competing bidders, when acquiring firms’ product markets are competitive, and when technological proximity is lower in the acquiring firms’ industry. Both the acquirer’s cumulative abnormal return around the announcement date and post-acquisition operating performance are positively related to the target firm’s innovation output and R&D spending.

Keywords: Innovation, Patents, Patent citations, Acquisitions, Takeover premium

JEL Classification: G34, G14, G32

Suggested Citation

Wu, Szu-Yin (Jennifer) and Chung, Kee H., Corporate Innovation, Likelihood to be Acquired, and Takeover Premiums (September 9, 2019). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3436819 or http://dx.doi.org/10.2139/ssrn.3436819

Szu-Yin (Jennifer) Wu

State University of New York, University at Buffalo ( email )

349 Jacobs Management Center
Buffalo, NY 14260
United States
7166453276 (Phone)
14260 (Fax)

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

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