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Acquiring Innovation under Information Frictions

Author

Listed:
  • Murat Alp Celik
  • Xu Tian
  • Wenyu Wang

Abstract

Acquiring innovation through M&A is subject to information frictions, as assessing the value of innovative targets is a challenging task. We find an inverted U-shaped relation between firm innovation and takeover exposure; equity usage increases with target innovation; and the deal completion rate drops with innovation. We develop and estimate a model of acquiring innovation under information frictions, featuring endogenous merger, innovation, and offer composition decisions. Our estimates suggest that acquirers’ due diligence reveals only 30 of private information possessed by targets. Eliminating information frictions increases capitalized merger gains by 59, stimulates innovation, and boosts productivity, business dynamism, and social welfare.

Suggested Citation

  • Murat Alp Celik & Xu Tian & Wenyu Wang, 2022. "Acquiring Innovation under Information Frictions," The Review of Financial Studies, Society for Financial Studies, vol. 35(10), pages 4474-4517.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:10:p:4474-4517.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhac006
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    Citations

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    Cited by:

    1. Fons-Rosen, Christian & Roldan-Blanco, Pau & Schmitz, Tom, 2022. "The Effects of Startup Acquisitions on Innovation and Economic Growth," CEPR Discussion Papers 17752, C.E.P.R. Discussion Papers.
    2. Udichibarna Bose, 2023. "Does green transition promote green innovation and technological acquisitions?," Working Papers w202305, Banco de Portugal, Economics and Research Department.
    3. Martinez Cillero, Maria & Gregori, Wildmer Daniel & Bose, Udichibarna, 2023. "Does Green Transition promote Green Innovation and Technological Acquisitions?," JRC Working Papers in Economics and Finance 2023-04, Joint Research Centre, European Commission.
    4. Kim, Jinhwan & Valentine, Kristen, 2023. "Public firm disclosures and the market for innovation," Journal of Accounting and Economics, Elsevier, vol. 76(1).
    5. Xing, Fei & Hai, Mengdie & Cai, Jiayao, 2023. "Network centrality and technology acquisitions: Evidence from China's listed business groups," Economic Modelling, Elsevier, vol. 120(C).
    6. Huang, Sheng & Maharjan, Johan & Nanda, Vikram, 2024. "Liquid stock as an acquisition currency," Journal of Corporate Finance, Elsevier, vol. 85(C).
    7. Jian Zhou & Xiaodong Lei & Jianglong Yu, 2024. "ESG rating divergence and corporate green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 2911-2930, May.
    8. Udichibarna Bose, 2023. "Does green transition promote green innovation and technological acquisitions?," Working Papers w202305, Banco de Portugal, Economics and Research Department.

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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