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R&D investment as a signal in corporate takeovers

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  • M. Pilar Socorro

    (Departamento de Análisis Económico Aplicado, Universidad de Las Palmas de Gran Canaria, Las Palmas de Gran Canaria, Spain)

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    Abstract

    The purpose of this paper is to analyze the effects that takeover threats have on firms' preacquisition R&D intensity. Critics of takeovers usually argue that takeover threats may reduce target firms' R&D investments. However, I find that target firms may increase R&D investment in order to signal their compatibility with the acquiring firm. The identity of the acquired firm depends on the market size and target firms' efficiency and compatibility. Through R&D investments, target firms may affect this result, signaling potential outsiders the kind of competition they may face, and forcing them to accept lower takeover offers. Copyright © 2009 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1456
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 30 (2009)
    Issue (Month): 5 ()
    Pages: 335-350

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    Handle: RePEc:wly:mgtdec:v:30:y:2009:i:5:p:335-350

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
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    12. Aoki, Reiko & Reitman, David, 1992. "Simultaneous signaling through investment in an R& D game with private information," Games and Economic Behavior, Elsevier, vol. 4(3), pages 327-346, July.
    13. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
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