Impact of Mergers and Acquisitions on Innovation: Evidence from a Panel of Indian Pharmaceutical Firms

Rakesh Basant and Neha Jaiswal

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: Based on the literature, the paper identifies processes that get initiated post an M&A event and affect the acquiring firm’s innovation efforts. We apply panel fixed effects estimation techniques to analyze the individual impact of mergers and acquisitions on R&D intensity of acquiring firms using data for 217 publically listed Indian pharmaceutical firms (both acquirers and non-acquirers) during 1999-2018. The study finds that acquisitions rather than mergers provide impetus to R&D in the acquiring firms. This suggests that these two combinations – mergers and acquisitions - do not unleash the same type of innovation activity related processes in the acquiring firm. Results also show that when mergers or acquisitions are combined with purchase of assets, they have a positive impact on R&D intensity. Purchase of assets when combined with M&A seem to provide access to relevant complementary assets that makes R&D activity profitable for the acquirer post the merger or acquisition event. Possibly, firms view purchase of assets as a strategy that is complementary to M&A strategies for enhancing innovation. The paper shows that impact of M&A on R&D takes time and it is useful to analyze the impact of mergers and acquisitions separately, rather than combining the two together.

Date: 2022-01-25
New Economics Papers: this item is included in nep-bec, nep-com, nep-cwa, nep-ind, nep-reg, nep-sbm and nep-tid
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