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Post Merger Innovative Patterns in Small and Medium Firms

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  • E. Cefis
  • M.L. Ghita
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    Abstract

    This paper investigates whether involvement in mergers and acquisitions (M&As) triggers distinct patterns of innovative behaviour across firms situated at different points on the firm size distribution. Firms use more and more M&As as mechanisms to bridge the gap between where they are and what they want to achieve in terms of innovation and performance. We explore the different impact of M&A activity on the likelihood that firms begin to innovate using an unique dataset combining innovation and economic firm-level data from two different sources: the 4 waves of Community Innovation Survey and the Business Register, for the Dutch manufacturing sector. The analysis is carried out at different size classes. The results show that both new entry and persistence in innovative activities are fostered by M&A involvement. Medium firms are the ones showing the highest probabilities of entering /persisting in innovative activities after M&As. For small firms, M&As do not ease the overcome of “the innovative thresholdâ€; on the contrary they seem to increase the probability of exiting innovative status in the post-merger period.

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    File URL: http://dspace.library.uu.nl/bitstream/handle/1874/31436/08-09.pdf
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    Bibliographic Info

    Paper provided by Utrecht School of Economics in its series Working Papers with number 08-09.

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    Length: 29 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:use:tkiwps:0809

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    Keywords: Mergers and acquisitions; innovation; small and medium enterprises; transition probabilities; probit models;

    This paper has been announced in the following NEP Reports:

    References

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    1. Hagedoorn, John & Cloodt, Myriam, 2003. "Measuring innovative performance: is there an advantage in using multiple indicators?," Research Policy, Elsevier, vol. 32(8), pages 1365-1379, September.
    2. Schulz, Norbert, 2007. "Review of the Literature on the Impact of Mergers on Innovation," ZEW Discussion Papers 07-061, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Evangelista, Rinaldo & Perani, Giulio & Rapiti, Fabio & Archibugi, Daniele, 1997. "Nature and impact of innovation in manufacturing industry: some evidence from the Italian innovation survey," Research Policy, Elsevier, vol. 26(4-5), pages 521-536, December.
    4. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, vol. 5(3-4), pages 287-320.
    5. Geroski, P. A. & Van Reenen, J. & Walters, C. F., 1997. "How persistently do firms innovate?," Research Policy, Elsevier, vol. 26(1), pages 33-48, March.
    6. Xulia González & Consuelo Pazó, 2002. "Firms’ R&D Dilemma: To Undertake Or Not To Undertake R&D," Working Papers 0208, Universidade de Vigo, Departamento de Economía Aplicada.
    7. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
    8. Arora, Ashish & Fosfuri, Andrea & Gambardella, Alfonso, 2001. "Markets for Technology and Their Implications for Corporate Strategy," Industrial and Corporate Change, Oxford University Press, vol. 10(2), pages 419-51, June.
    9. Jacques Mairesse & Pierre Mohnen, 2002. "Accounting for Innovation and Measuring Innovativeness: An Illustrative Framework and an Application," American Economic Review, American Economic Association, vol. 92(2), pages 226-230, May.
    10. Schulz, Norbert, 2007. "Review of the Literature on the Impact of Mergers on Innovation," W.E.P. - Würzburg Economic Papers 76, University of Würzburg, Chair for Monetary Policy and International Economics.
    11. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
    12. E. Cefis & A. Sabidussi & E.J.J. Schenk, 2007. "Do mergers of potentially dominant firms foster innovation? An empirical analysis for the manufacturing sector," Working Papers 07-20, Utrecht School of Economics.
    13. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
    14. 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.
    15. Cloodt, Myriam & Hagedoorn, John & Van Kranenburg, Hans, 2006. "Mergers and acquisitions: Their effect on the innovative performance of companies in high-tech industries," Research Policy, Elsevier, vol. 35(5), pages 642-654, June.
    16. Malerba, Franco & Orsenigo, Luigi, 1995. "Schumpeterian Patterns of Innovation," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 47-65, February.
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