Unpatented Innovation and Merger Synergies

Review of Accounting Studies, forthcoming

56 Pages Posted: 22 Sep 2020 Last revised: 11 Dec 2020

See all articles by Messod D. Beneish

Messod D. Beneish

Indiana University - Kelley School of Business - Department of Accounting

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Ayung Tseng

Georgetown University - Department of Accounting and Business Law; Indiana University

Patrick Vorst

Maastricht University School of Business and Economics

Date Written: December 11, 2020

Abstract

The increasingly service-based U.S. economy places a high reliance on innovation. While there is considerable research on the importance of certain innovative activities such as patents, less attention has been paid to unpatented innovation, about which there is naturally less publicly available information. Our study exploits disclosure on the fair value of acquired innovation to show that unpatented innovation plays an important, though often ignored, role in merger value creation. We detail the importance of unpatented technology and show that traditional approaches that rely only on R&D expenditures and patents lead to both misclassification of merger types as well as underestimates of the impact of innovation in value creation. Indeed, our evidence suggests that, on aggregate, unpatented innovation accounts for a larger portion of synergies. We further show that higher (lower) gains accrue to the acquirer (the target) in relation to unpatented innovation, which is consistent with limited publicly available information about unpatented innovation reducing the target’s bargaining power.

Keywords: Acquisitions, Mergers, Synergies, Intellectual Property, Intangibles, R&D, Technology, Trade secrets, Innovation, Purchase Price Allocations

JEL Classification: G32, G34, M40

Suggested Citation

Beneish, Messod Daniel and Harvey, Campbell R. and Tseng, Ayung and Vorst, Patrick, Unpatented Innovation and Merger Synergies (December 11, 2020). Review of Accounting Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=3669294 or http://dx.doi.org/10.2139/ssrn.3669294

Messod Daniel Beneish

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2628 (Phone)
812-855-4985 (Fax)

Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ayung Tseng (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

Indiana University ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Patrick Vorst

Maastricht University School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

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