“Corporate Innovations and Mergers and Acquisitions” by Kai Li
Finance Seminar
Authors:
Kai Li
University of British ColumbiaJan Bena
University of British Columbia
Using a large unique patent-merger dataset over the period 1984-2006, we uncover one specific source of synergies-corporate innovation activities-that drives acquisitions. We first show that companies with a large number of patents-later in their innovation life cycle-are more likely to be acquirers, while companies with high R&D expenditures-earlier in their innovation life cycle-are more likely to be acquired. Further, the existence of technological overlap between any two firms has a positive and significant effect on merger pair formation. We then show that mergers are more likely to take place between firms with either technological or product market overlap, but less likely when both are present. Finally, using a quasi-experiment of withdrawn bids due to reasons exogenous to innovation, we show that mergers involving acquirers with prior technological linkage to their target firms produce significantly more patents after the deal is completed than acquirers without the prior linkage. We conclude that synergies obtained from combining innovation capabilities are an important driver for acquisitions.
