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R&D and the Incentives from Merger and Acquisition Activity

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  • Gordon M. Phillips
  • Alexei Zhdanov

Abstract

We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence show that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.

Suggested Citation

  • Gordon M. Phillips & Alexei Zhdanov, 2012. "R&D and the Incentives from Merger and Acquisition Activity," NBER Working Papers 18346, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18346
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    References listed on IDEAS

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    1. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
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    3. Vojislav Maksimovic & Gordon Phillips, 2008. "The Industry Life Cycle, Acquisitions and Investment: Does Firm Organization Matter?," Journal of Finance, American Finance Association, vol. 63(2), pages 673-708, April.
    4. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1990. " Do Managerial Objectives Drive Bad Acquisitions?," Journal of Finance, American Finance Association, vol. 45(1), pages 31-48, March.
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    Citations

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    Cited by:

    1. Henkel, Joachim & Rønde, Thomas & Wagner, Marcus, 2015. "And the winner is—Acquired. Entrepreneurship as a contest yielding radical innovations," Research Policy, Elsevier, vol. 44(2), pages 295-310.
    2. repec:eee:tefoso:v:127:y:2018:i:c:p:141-153 is not listed on IDEAS
    3. repec:eee:corfin:v:45:y:2017:i:c:p:162-175 is not listed on IDEAS
    4. Chondrakis, George, 2016. "Unique synergies in technology acquisitions," Research Policy, Elsevier, vol. 45(9), pages 1873-1889.
    5. repec:eee:jfinec:v:125:y:2017:i:2:p:344-368 is not listed on IDEAS
    6. Laurent Frésard & Ulrich Hege & Gordon Phillips, 2017. "Extending Industry Specialization through Cross-Border Acquisitions," Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1539-1582.
    7. Vithessonthi, Chaiporn & Racela, Olimpia C., 2016. "Short- and long-run effects of internationalization and R&D intensity on firm performance," Journal of Multinational Financial Management, Elsevier, vol. 34(C), pages 28-45.
    8. Ibrahim Bostan & Mariana Spatareanu, 2016. "Financing Innovation through Minority Acquisitions," Working Papers Rutgers University, Newark 2016-002, Department of Economics, Rutgers University, Newark.
    9. repec:eee:finana:v:51:y:2017:i:c:p:16-24 is not listed on IDEAS

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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