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R&D investment as a signal in corporate takeovers

  • M. Pilar Socorro

    ()

    (Universidad de Las Palmas de Gran Canaria; Facultad de Ciencias Eonómicas y Empresariales; Departamento de Análisis Económico Aplicado; C/ Saulo Torón 4, 35017 Las Palmas de G.C. Spain)

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    Critics of takeovers usually argue that takeover threats may reduce target firms' R&D intensity. However, we find that under takeover threats, target firms may nevertheless increase R&D investment in order to signal their compatibility with the acquiring firm. The identity of the acquired firm depends on the market size and target firms' efficiency and compatibility. Target firms may affect this result investing in R&D. Through R&D investments, these firms signal potential outsiders the kind of competition they may face and force them to accept lower takeover offers.

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    File URL: http://www.bibliotecas.ulpgc.es/fcee/hemeroteca/documentos%20de%20trabajo/DocumentosDTrabajo/doc42/dt2004-07.pdf
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    Paper provided by Facultad de Ciencias Económicas de la ULPGC in its series Documentos de trabajo conjunto ULL-ULPGC with number 2004-07.

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    Length: 29 pages
    Date of creation: Jul 2004
    Date of revision:
    Handle: RePEc:can:series:2004-07
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    1. Stein, Jeremy C., 1988. "Takeover Threats and Managerial Myopia," Scholarly Articles 3708937, Harvard University Department of Economics.
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    4. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
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    8. Barros, Pedro Pita, 1998. "Endogenous mergers and size asymmetry of merger participants," Economics Letters, Elsevier, vol. 60(1), pages 113-119, July.
    9. 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.
    10. Meulbroek, Lisa K, et al, 1990. "Shark Repellents and Managerial Myopia: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1108-17, October.
    11. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June.
    12. Narayanan, M P, 1985. " Managerial Incentives for Short-term Results," Journal of Finance, American Finance Association, vol. 40(5), pages 1469-84, December.
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    14. Cassiman, Bruno & Veugelers, Reinhilde, 2002. "Complementarity in the Innovation Strategy: Internal R&D, External Technology Acquisition and Cooperation," CEPR Discussion Papers 3284, C.E.P.R. Discussion Papers.
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