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Genetic Codes of Mergers, Post Merger Technology Evolution and Why Mergers Fail

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  • Alexander Cuntz

Abstract

This paper addresses the key determinants of merger failure, in par- ticular the role of innovation (post-merger performance) and technology (ex-ante selection) when rms decide to separate. After a brief review of the existing literature we introduce a model of process innovation where merged firms exibit intra-merger spillover of knowledge under different mar- ket regimes, depending on whether firms integrate vertically or horizontally. Secondly, we describe an ideal matching pattern for ex-ante selection cri- teria of technological partnering, abstracting from nancial market power issues. In a final section we test the model implications for merger failure for M&A data from the US biotechnology industry in the 90s. We find that post-merger innovation performance, in particular with large spillovers, in- creases the probability of survival, while we have no evidence that market power effects do so in long run. Additionally, we find extensive technology sourcing activity by firms (already in the 90s) which contradicts the notion of failure and suits well the open innovation paradigm.

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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-029.

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Length: 25 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2008-029

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Keywords: merger failure; innovation performance; technology; matching; open innovation; biotechnology;

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