The Effect of Takeover Activity on Corporate Research and Development

Bronwyn H. Hall

NBER Working Paper No. 2191 (Also Reprint No. r1091)
Issued in March 1987
NBER Program(s):Productivity, Innovation, and Entrepreneurship

It is widely thought that increases in corporate mergers and acquisitions of the sort which the United States has experienced in the recent past lead to a reduction in such long term investment activities as R&D because of a shortened horizon on the part of managers. This paper uses a newly created dataset containing all acquisitions of publicly traded firms in the manufacturing sector in the last ten years to answer some basic questions which pertain to this issue. I find that the firms involved in acquisitions and mergers where both partners are in the manufacturing sector have roughly the same pattern of R&D spending as the sector as a whole and that the acquisition itself does not cause a reduction in R&D activity on the part of these firms. Moreover, the R&D capital thus acquired is valued more highly by the acquiring firm than by the stock market. On the other hand, I also find that the substantial increase in the number and size of acquisitions made by privately held firms in the eighties is concentrated primarily on firms with low R&D intensity which also are in non-R&D intensive industries. Because the pattern of low investment in R&D is longstanding, and because the firms taken over have less rather than more R&D capital than the industry as a whole, it seems unlikely that the recent increase in takeover activity has had a significantly negative effect on R&D spending in these industries.

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Document Object Identifier (DOI): 10.3386/w2191


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