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R&D investment as a signal in corporate takeovers

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  • M. Pilar Socorro

    ()
    (Universidad de Las Palmas de Gran Canaria; Facultad de Ciencias Eonómicas y Empresariales; Departamento de Análisis Económico Aplicado; C/ Saulo Torón 4, 35017 Las Palmas de G.C. Spain)

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    Abstract

    Critics of takeovers usually argue that takeover threats may reduce target firms' R&D intensity. However, we find that under takeover threats, target firms may nevertheless 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. Target firms may affect this result investing in R&D. Through R&D investments, these firms signal potential outsiders the kind of competition they may face and force them to accept lower takeover offers.

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    Bibliographic Info

    Paper provided by Facultad de Ciencias Económicas de la ULPGC in its series Documentos de trabajo conjunto ULL-ULPGC with number 2004-07.

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    Length: 29 pages
    Date of creation: Jul 2004
    Date of revision:
    Handle: RePEc:can:series:2004-07

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    Keywords: takeover; signaling; bargaining power; fitting company.;

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    11. Cassiman, Bruno & Veugelers, Reinhilde, 2002. "Complementarity in the Innovation Strategy: Internal R&D, External Technology Acquisition and Cooperation," CEPR Discussion Papers 3284, C.E.P.R. Discussion Papers.
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