The Stock Market's Valuation of Research and Development and Market Concentration in Horizontal Mergers
It is well documented that acquirers often pay a very large premium to acquire companies in related industries. There are many explanations as to the source of this premium. This study isolates two variables, R and D-intensity and market concentration, and correlates their value individually and jointly to the value of the acquired company. The results indicate that change in market concentration and Research and Development is positively correlated to the merger deal premium in a horizontal merger. Furthermore, deal premiums tend to follow an inverted U curve pattern relative to market concentration change. The study also shows that cost synergies and macro economic growth impact deal premium values.
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- Wesley M. Cohen & Richard C. Levin & David C. Mowery, 1987. "Firm Size and R&D Intensity: A Re-Examination," NBER Working Papers 2205, National Bureau of Economic Research, Inc.
- Slusky, Alexander R & Caves, Richard E, 1991. "Synergy, Agency, and the Determinants of Premia Paid in Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 39(3), pages 277-296, March.
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