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The Effect of Takeover Activity on Corporate Research and Development

In: Corporate Takeovers: Causes and Consequences

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  • Bronwyn H. Hall

Abstract

It is widely thought that increases in corporate mergers and acquisitions of the sort which the United States has experienced in the recent past lead to a reduction in such long term investment activities as R&D because of a shortened horizon on the part of managers. This paper uses a newly created dataset containing all acquisitions of publicly traded firms in the manufacturing sector in the last ten years to answer some basic questions which pertain to this issue. I find that the firms involved in acquisitions and mergers where both partners are in the manufacturing sector have roughly the same pattern of R&D spending as the sector as a whole and that the acquisition itself does not cause a reduction in R&D activity on the part of these firms. Moreover, the R&D capital thus acquired is valued more highly by the acquiring firm than by the stock market. On the other hand, I also find that the substantial increase in the number and size of acquisitions made by privately held firms in the eighties is concentrated primarily on firms with low R&D intensity which also are in non-R&D intensive industries. Because the pattern of low investment in R&D is longstanding, and because the firms taken over have less rather than more R&D capital than the industry as a whole, it seems unlikely that the recent increase in takeover activity has had a significantly negative effect on R&D spending in these industries.

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This chapter was published in:

  • Alan J. Auerbach, 1988. "Corporate Takeovers: Causes and Consequences," NBER Books, National Bureau of Economic Research, Inc, number auer88-1.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 2053.

    Handle: RePEc:nbr:nberch:2053

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