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Innovation spillover and merger decisions

Author

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  • Mahdiyeh Entezarkheir

    (Huron University College at University of Western Ontario)

  • Saeed Moshiri

    (University of Saskatchewan)

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 within-industry 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.

Suggested Citation

  • Mahdiyeh Entezarkheir & Saeed Moshiri, 2021. "Innovation spillover and merger decisions," Empirical Economics, Springer, vol. 61(5), pages 2419-2448, November.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:5:d:10.1007_s00181-020-01973-6
    DOI: 10.1007/s00181-020-01973-6
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    More about this item

    Keywords

    Merger; Innovation; R&D; Spillovers; Competition; Patent;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • 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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