The Role of Corporate Innovation and Science in M&A. Performance Implications for Acquiring High-tech Firms

Abstract

Research and development (R&D) represent an important source of competitive advantage for companies, particularly in high-tech industries. However, firms have proven that it is challenging to be successful innovators, especially in a period of declining R&D productivity. Firms are therefore increasingly looking outside their organizational boundaries to access innovation, as it happens in the pharmaceutical industry where strategic alliances, licensing and M&As are widespread tools. Scholars agree that the weakness of R&D and the need to fill in research pipelines are key M&A determinants. However, the M&A performance literature does not agree on the beneficial effects of such organizational boundary-expanding activities. This dissertation, analyzing financial and innovative data of more than 4.000 U.S. publicly traded corporates, examines the post-M&A performance of acquiring firms in high-tech industries. Specifically, this thesis develops a framework relating target’s corporate science and innovation to acquirer’s performance, leveraging a set of knowledge stock measures. The analysis expands the evidence of the role of corporate science and innovation literature to an M&A setting, assessing the impact on acquiror’s value, financial and innovative performance of corporate science and innovation. Overall, the analyses find evidence that M&As are positively associated with acquiror’s performance. Non-innovative and scientific deals have a greater impact on acquiror’s firm value and product-market performance, while scientific and innovative targets better nurture acquiror’s innovative outputs. This paper also finds that patent, publication, and scientific patent stocks are positively associated with acquirors’ innovative and financial performance, while no evidence is found with respect to the acquiror’s firm value. These findings somewhat confirm the role of M&As as a possible solution for mitigating R&D productivity and innovation production concerns, representing a set of important takeaways for industries, like the pharmaceutical one, experiencing severe productivity issues and challenges on the way to become successful innovators.