Innovation spillover and merger decisions
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Innovation spillover and merger decisions Mahdiyeh Entezarkheir1
· Saeed Moshiri2
Received: 1 November 2019 / Accepted: 27 October 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract The merger–innovation nexus has been well studied in the theoretical literature, but empirical evidence, particularly on the spillover impacts of innovation, is limited. Merger decisions are influenced by a series of macroeconomic and behavioural factors; however, internalizing innovation spillovers and keeping a competitive edge may also explain merger activities. In this paper, we investigate the impact of innovation spillovers on the likelihood of firms to merge, using a combined panel data set of mergers among publicly traded US manufacturing firms from 1980 to 2003. Innovation is measured using R&D investments and citation-weighted patents, and innovation spillover is proxied using the technological proximity of firms and rivals’ innovation. We include a series of control variables affecting merger decisions and address the potential endogeneity problem using previous R&D activities of firms. We find that innovative firms are on average more likely to merge. The results also show that withinindustry inward spillovers increase the likelihood of mergers, but between-industry inward spillovers do not influence merger decisions significantly. Our main results are robust to alternative measures of innovation and spillovers as well as to different estimation methods such as propensity score matching. Keywords Merger · Innovation · R&D · Spillovers · Competition · Patent
We are grateful for comments by Mario Samano, and by participants at the 2018 IIOC and CEA conferences, and the seminars organized by the Department of Economics, the University of Western Ontario, and the Department of Agricultural and Resource Economics, University of Saskatchewan. We would also like to thank the anonymous referee for valuable comments. The usual disclaimer applies.
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Mahdiyeh Entezarkheir [email protected] Saeed Moshiri [email protected]
1
Department of Economics, Huron University College at University of Western Ontario, 1349 Western Rd, London, ON N6G 1H3, Canada
2
Department of Economics, STM College, University of Saskatchewan, 1437 College Dr., Saskatoon, SK S7N 0W6, Canada
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M. Entezarkheir, S. Moshiri
JEL Classification L12 · L13 · L22 · L40 · L44 · L60 · O31 · O32 · O34
1 Introduction High-tech and innovative industries host a great deal of merger activities (Deman and Duysters 2005; Chirgui 2009), which may imply a relation between mergers and innovation. Mergers may be appealing for innovative firms, as they are often a more efficient approach to increasing capacity than direct investments (Katz and Shelanski 2005; Becketti 1986). Mergers may also help innovative firms in combining R&D resources, gaining economies of scale and scope, handling large fixed costs, and strengthening their research pipelines (Bena and Li 2014; Huck et al. 2000; Henderson 2000).1 Innovation spillover may be another reason
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