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Innovations and earnings non‐synchronicity: evidence from industry M&A activities

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  • Shih‐Chu Chou
  • Yu‐Fang Chu

Abstract

This paper investigates how earnings non‐synchronicity impacts associated with firm‐level research and development (R&D) investment vary as a function of industry‐level mergers and acquisitions (M&A) intensity. Investing in R&D enables firms to differentiate and gain competitive advantages; differentiation strategies increase idiosyncratic variation in firms’ earnings. We introduce an industry‐level contextual variable, industry‐level M&A, to capture variations in innovation novelty. We show that the positive relationship between R&D investment and earnings non‐synchronicity is increasing in the intensity of inside‐industry M&A but not outside‐industry M&A. This is consistent with our conjecture that M&A within an industry facilitate knowledge base expansion and induce more innovative R&D through complementary effects.

Suggested Citation

  • Shih‐Chu Chou & Yu‐Fang Chu, 2022. "Innovations and earnings non‐synchronicity: evidence from industry M&A activities," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 337-367, March.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:1:p:337-367
    DOI: 10.1111/acfi.12792
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    References listed on IDEAS

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