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Mergers and innovation in big pharma

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  • Ornaghi, Carmine

Abstract

The aims of this paper are to study the effects of mergers on the R&D activity of consolidated firms and to explore the relationship between ex-ante relatedness of merging parties and their ex-post performances. The analysis is conducted using data of the pharmaceutical industry for the period 1988-2004. The empirical results suggest that merged companies have on average, worse performances than the group of non-merging firms. This result is confirmed when I account for the endogeneous formation of mergers by selecting a control group first using the propensity score method and then taking into account the technological relatedness of the firms. Finally, I find that higher levels of technological relatedness are not associated with better R&D outcomes.

Suggested Citation

  • Ornaghi, Carmine, 2009. "Mergers and innovation in big pharma," International Journal of Industrial Organization, Elsevier, vol. 27(1), pages 70-79, January.
  • Handle: RePEc:eee:indorg:v:27:y:2009:i:1:p:70-79
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    References listed on IDEAS

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    Cited by:

    1. Gugler, Klaus & Szücs, Florian, 2016. "Merger externalities in oligopolistic markets," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 230-254.
    2. Walter Park & Ralph Sonenshine, 2012. "Impact of Horizontal Mergers on Research & Development and Patenting: Evidence from Merger Challenges in the U.S," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 143-167, March.
    3. Feiqiong Chen & Yao Chen & Fangfang Zhong, 0. "Integration decision-making in technology-sourcing cross-border M&As: a mathematical model," Computational and Mathematical Organization Theory, Springer, vol. 0, pages 1-22.
    4. Marcela Miozzo & Lori DiVito & Panos Desyllas, 2011. "Cross-border acquisitions of science-based firms: Their effect on innovation in the acquired firm and the local science," DRUID Working Papers 11-17, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    5. Massimo Motta & Emanuele Tarantino, 2017. "The effect of horizontal mergers, when firms compete in prices and investments," Economics Working Papers 1579, Department of Economics and Business, Universitat Pompeu Fabra.
    6. repec:eee:transa:v:103:y:2017:i:c:p:444-454 is not listed on IDEAS
    7. Albert Banal‐Estañol & Jo Seldeslachts, 2011. "Merger Failures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 589-624, June.
    8. Méndez Ortega, Carles, & Teruel, Mercedes, 2018. "To acquire or not to acquire: Mergers and Acquisitions in the Software Industry," Working Papers 2072/307043, Universitat Rovira i Virgili, Department of Economics.
    9. Tannistra Banerjee & Stephen Martin, 2015. "Pharmaceutical Regulation and Innovative Performance: A Decision‐theoretic Model," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 36(3), pages 177-190, April.
    10. Haucap, Justus & Stiebale, Joel, 2016. "How mergers affect innovation: Theory and evidence from the pharmaceutical industry," DICE Discussion Papers 218, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Kai-Uwe Kühn & Szabolcs Lorincz & Vincent Verouden & Annemiek Wilpshaar, 2012. "Economics at DG Competition, 2011–2012," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(4), pages 251-270, December.
    12. Thomas Canace & Steven Mann, 2014. "The impact of technology-motivated M&A and joint ventures on the value of IT and non-IT firms: a new examination," Review of Quantitative Finance and Accounting, Springer, vol. 43(2), pages 333-366, August.
    13. Desyllas, Panos & Hughes, Alan, 2010. "Do high technology acquirers become more innovative?," Research Policy, Elsevier, vol. 39(8), pages 1105-1121, October.
    14. Colombo, Massimo G. & Rabbiosi, Larissa, 2014. "Technological similarity, post-acquisition R&D reorganization, and innovation performance in horizontal acquisitions," Research Policy, Elsevier, vol. 43(6), pages 1039-1054.
    15. Szücs, Florian, 2014. "M&A and R&D: Asymmetric Effects on acquirers and targets?," Research Policy, Elsevier, vol. 43(7), pages 1264-1273.
    16. repec:spr:comaot:v:23:y:2017:i:4:d:10.1007_s10588-016-9241-1 is not listed on IDEAS
    17. Katrin Hussinger, 2012. "Absorptive capacity and post-acquisition inventor productivity," The Journal of Technology Transfer, Springer, vol. 37(4), pages 490-507, August.
    18. Ralph Siebert, 2017. "Heterogeneous Merger Impacts on Competitive Outcomes," CESifo Working Paper Series 6607, CESifo Group Munich.
    19. Tannista Banerjee & Ralph Siebert, 2013. "The Impact of R&D Cooperation on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry," Auburn Economics Working Paper Series auwp2013-20, Department of Economics, Auburn University.
    20. Tannista Banerjee & Arnab Nayak, 2015. "Comparing Domestic and Cross-Border Mergers and Acquisitions in the Pharmaceutical Industry," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(4), pages 489-499, December.
    21. Darren Filson & Saman Olfati & Fatos Radoniqi, . "Evaluating Mergers in the Presence of Dynamic Competition Using Impacts on Rivals," Journal of Law and Economics, University of Chicago Press, vol. 58(4).
    22. Haucap, Justus & Rasch, Alexander & Stiebale, Joel, 2019. "How mergers affect innovation: Theory and evidence," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 283-325.
    23. Stiebale, Joel & Reize, Frank, 2011. "The impact of FDI through mergers and acquisitions on innovation in target firms," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 155-167, March.
    24. Schön, Benjamin & Pyka, Andreas, 2013. "The success factors of technology-sourcing through mergers & acquisitions: An intuitive meta-analysis," FZID Discussion Papers 78-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    25. Bertrand, Olivier, 2009. "Effects of foreign acquisitions on R&D activity: Evidence from firm-level data for France," Research Policy, Elsevier, vol. 38(6), pages 1021-1031, July.

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