R&amp;D and the Incentives from Merger and Acquisition Activity

Phillips, Gordon; Zhdanov, Alexei

doi:10.3386/w18346

Cited by 48 publications

(69 citation statements)

References 12 publications

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“…We show that innovation output and R&D expenses have different implications regarding whether a firm will become an acquirer or a target firm. Our findings on R&D expenses are consistent with Phillips and Zhdanov (), who show that small firms are R&D intensive when they can sell out to large firms, while large firms optimally may decide to purchase small innovative firms and conduct less R&D themselves. We further show that acquirers are firms with large patent portfolios, while target firms have high R&D expenses but experience slow growth in realized innovation output.…”

Section: Ex Ante Selection Effectssupporting

confidence: 91%

Corporate Innovations and Mergers and Acquisitions

Bena¹,

Li²

2014

The Journal of Finance

689

257

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Using a large and unique patent‐merger data set over the period 1984 to 2006, we show that companies with large patent portfolios and low R&D expenses are acquirers, while companies with high R&D expenses and slow growth in patent output are targets. Further, technological overlap between firm pairs has a positive effect on transaction incidence, and this effect is reduced for firm pairs that overlap in product markets. We also show that acquirers with prior technological linkage to their target firms produce more patents afterwards. We conclude that synergies obtained from combining innovation capabilities are important drivers of acquisitions.

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Section: Ex Ante Selection Effectssupporting

confidence: 91%

Corporate Innovations and Mergers and Acquisitions

Bena¹,

Li²

2014

The Journal of Finance

689

257

View full text Add to dashboard Cite

show abstract

“…One concern with using R&D as a proxy for holdup problems is that R&D could lead to an innovation, or it could fail. Only the ex ante R&D that occurs before an innovation has been discovered should lead to holdup problems (Allen and Phillips (), Phillips and Zhdanov ()). Given the economy‐wide breadth of our study, it is infeasible for us to identify ex ante and ex post R&D.…”

mentioning

confidence: 99%

The Importance of Industry Links in Merger Waves

Ahern¹,

Harford²

2014

The Journal of Finance

386

172

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We represent the economy as a network of industries connected through customer and supplier trade flows. Using this network topology, we find that stronger product market connections lead to a greater incidence of cross‐industry mergers. Furthermore, mergers propagate in waves across the network through customer‐supplier links. Merger activity transmits to close industries quickly and to distant industries with a delay. Finally, economy‐wide merger waves are driven by merger activity in industries that are centrally located in the product market network. Overall, we show that the network of real economic transactions helps to explain the formation and propagation of merger waves.

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“…Armour and Teece (1980) argue that R&D intensive firms along the vertical chain have complex inter-dependencies while Levy (1985) argues that these firms use specialized inputs that require transaction-specific investments by suppliers. Phillips and Zhadanov (2013) claim that large firms can optimally outsource their R&D to smaller firms and subsequently acquire them upon successful innovation, since their R&D investments are potentially tailored to the firm's inputs. Bowen et al (1995) and Titman (1984) use a firm's R&D expenditure as an indicator of product uniqueness (or asset specificity).…”

Section: Suppliers' Relationship-specific Investmentmentioning

confidence: 99%

CEO Incentives and Customer‐Supplier Relations

Sanders

Venkateswaran

2017

Production and Operations Management

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This study explores how suppliers adjust their relation‐specific investments (RSI) in response to the different risk‐taking incentives provided by the customer firm to its CEO, during normal and transition periods. We investigate this relation using 17,553 customer–supplier transactions over the 1993–2013 period. We find strong evidence consistent with the risk‐taking argument. Specifically, we find that an increase in the risk‐taking incentives of customer CEOs leads to a decline in suppliers’ RSI in normal periods, but an increase in RSI during transition periods. We employ the FAS‐123R mandate to show that an exogenous reduction in customer CEO's incentive pay increases suppliers’ RSI. We reaffirm the effect with the passage of the Sarbanes–Oxley Act as a secondary quasi‐natural experiment. Finally, we examine several scenarios that either amplify or attenuate the observed relation, based on factors such as financial constraints, distress, growth opportunities, industry competition, and other firm characteristics. Our study contributes to the literature that examines the interplay between corporate policy and product market relationships.

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R&D and the Incentives from Merger and Acquisition Activity

Cited by 48 publications

References 12 publications

Corporate Innovations and Mergers and Acquisitions

Corporate Innovations and Mergers and Acquisitions

The Importance of Industry Links in Merger Waves

CEO Incentives and Customer‐Supplier Relations

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