Acquisition for Innovations? M&A Intensity and Intra-Firm R&D Reallocations
52 Pages Posted: 30 Oct 2019 Last revised: 20 Jul 2020
Date Written: July 20, 2020
We investigate how M&A activities are used to allocate R&D resources within firm boundary. We find that Chinese listed firms exhibit strong intra-firm R&D reallocation behaviors following M&A activities from 2007 to 2017. Specifically, they shift innovation activities to subsidiary firms following M&As. The intra-firm R&D reallocation concentrates in cash-paid, restructuring and related-party deals, and is pronounced among firms in the declining life-cycle stage. In addition, the intra-firm
R&D reallocation behaviors are visible in firms with low financial constraints, high product market competition, and low productivity. The intra-firm R&D reallocation is value-enhancing for listed firms in general. Our findings demonstrate intra-firm R&D reallocation as an effective innovation strategy.
Keywords: M&A intensity; firm innovation; R&D reallocation; China
JEL Classification: D22, L13, L4
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