Unpatented innovation and merger synergies

M. D. Beneish, C. R. Harvey, A. Tseng () and P. Vorst
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M. D. Beneish: Indiana University
C. R. Harvey: Duke University
A. Tseng: Indiana University
P. Vorst: Maastricht University

Review of Accounting Studies, 2022, vol. 27, issue 2, No 10, 706-744

Abstract: Abstract The increasingly service-based U.S. economy relies on innovation. While there is considerable research on the importance of certain innovative activities, such as patents, less attention has been paid to unpatented innovation, about which there is naturally less publicly available information. Our study exploits disclosure on the fair value of acquired innovation to show that unpatented innovation plays an important, though often ignored, role in merger value creation. We detail the importance of unpatented technology and show that traditional approaches that rely only on R&D expenditures and patents lead to both misclassification of merger types and underestimates of the impact of innovation in value creation. Our evidence suggests that, on average, unpatented innovation accounts for a larger portion of synergies. We further show that higher (lower) gains accrue to the acquirer (the target) in relation to unpatented innovation, consistent with limited publicly available information about unpatented innovation reducing the target’s bargaining power.

Keywords: Intellectual property; Intangibles; R&D; Technology; Non-patented innovation; Trade secrets; Innovation; Purchase price allocations; Acquisitions; Mergers; Synergies (search for similar items in EconPapers)
JEL-codes: G32 G34 M40 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11142-021-09613-9

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