NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

R&D and the Incentives from Merger and Acquisition Activity

Gordon M. Phillips, Alexei Zhdanov

NBER Working Paper No. 18346
Issued in August 2012
NBER Program(s):   CF   IO

We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence show that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.

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Document Object Identifier (DOI): 10.3386/w18346

Published: Gordon M. Phillips & Alexei Zhdanov, 2013. "R&D and the Incentives from Merger and Acquisition Activity," Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 34-78. citation courtesy of

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