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Stock market valuation of R&D spending of firms acquiring targets from technologically abundant countries

  • Pyykkö, Elina
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    In this paper, we aim to extend the internalization theory by Buckley and Casson [Buckley, P.J., Casson, M., 1976. The Future of Multinational Enterprise. Holmes & Meier, New York] and Caves [Caves, R.E., 1971. International corporations: the industrial economics of foreign investment. Economica 38, 1-27] in two respects. First, we hypothesize that synergies arising from a technology-oriented cross-border M&A increase the stock market value of an acquirer's R&D spending. Second, we hypothesize that an acquirer's access to a country with more favorable R&D environment through the target firm is the main source of synergy arising from intangibles in these M&As. Our empirical results of analyzing data from 10 most R&D active countries in Europe are consistent with these hypotheses and support our extension of the internalization theory. Specifically, we find that multinationality of a firm with intangible assets as such does not add value to R&D, but the combination of its own R&D with that of a firm located in a country with highly favorable R&D environment.

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    Article provided by Elsevier in its journal Journal of Multinational Financial Management.

    Volume (Year): 19 (2009)
    Issue (Month): 2 (April)
    Pages: 111-126

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    Handle: RePEc:eee:mulfin:v:19:y:2009:i:2:p:111-126
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