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Examining the stock performance of acquirers where the acquirer or target hold patents

Author

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  • Kevin H. Kim

    (University of Memphis)

  • Derek K. Oler

    (Texas Tech University)

  • Juan Manuel Sanchez

    (University of Texas at San Antonio)

Abstract

We investigate the stock returns for acquirers of firms holding registered patents (“innovative targets”). We find that acquiring innovative targets is associated with significantly positive stock performance relative to acquisitions of non-innovative targets. Specifically, acquirers of innovative targets enjoy higher announcement and interim period abnormal returns. Acquirers of innovative targets also enjoy higher post-acquisition returns, but only in settings where the acquirer’s and target’s industry is unambiguously close (i.e., they share the same 3-digit primary SIC code), suggesting that when the acquirer has familiarity and expertise in that industry the acquirer is able to better exploit the target firm’s patents. Additionally, we find that an acquirer’s innovation level can be critical to their post-acquisition stock performance; that is, acquirers holding at least one patent of their own prior to the acquisition enjoy significantly higher post-acquisition returns, and this benefit does not depend on the innovativeness of the target firm.

Suggested Citation

  • Kevin H. Kim & Derek K. Oler & Juan Manuel Sanchez, 2021. "Examining the stock performance of acquirers where the acquirer or target hold patents," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 185-217, January.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:1:d:10.1007_s11156-020-00890-0
    DOI: 10.1007/s11156-020-00890-0
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    Cited by:

    1. Kaufmann, Mattheo & Schiereck, Dirk, 2023. "Acquiring for innovation: Evidence from the U.S. technology industry," Journal of Economic Dynamics and Control, Elsevier, vol. 152(C).
    2. Joshua Coyne & Kevin H. Kim & Jayson Talakai, 2021. "At‐risk acquirers: survival strategy or last‐ditch effort?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5783-5808, December.
    3. Zhuo Qiao & Zhaohua Li & Yanzhi Wang, 2023. "Air pollution and innovation-evidence from quasi-natural experiment of China’s Huai River policy," Review of Quantitative Finance and Accounting, Springer, vol. 60(2), pages 425-443, February.

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    More about this item

    Keywords

    Mergers and acquisitions; Innovation; Patents; Industry expertise; Synergy;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • 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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