R&D and the Incentives from Merger and Acquisition Activity
AbstractWe provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence show that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18346.
Date of creation: Aug 2012
Date of revision:
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Other versions of this item:
- Gordon M. Phillips & Alexei Zhdanov, 2013. "R&D and the Incentives from Merger and Acquisition Activity," Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 34-78.
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G3 - Financial Economics - - Corporate Finance and Governance
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-COM-2012-09-09 (Industrial Competition)
- NEP-CSE-2012-09-09 (Economics of Strategic Management)
- NEP-INO-2012-09-09 (Innovation)
- NEP-INT-2012-09-09 (International Trade)
- NEP-IPR-2012-09-09 (Intellectual Property Rights)
- NEP-SBM-2012-09-09 (Small Business Management)
- NEP-TID-2012-09-09 (Technology & Industrial Dynamics)
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