Does M&A Matter for R&D? Evidence from the Pharmaceutical Sector in India

Vidhisha Vyas () and K. Narayanan ()
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Vidhisha Vyas: IILM Institute of Business and Management
K. Narayanan: IIT

A chapter in Technology, 2016, pp 89-109 from Springer

Abstract: Abstract It is widely accepted that technological expertise, market know-how, tacit knowledge and quick innovation are crucial corporate assets for facing increased competition. Mergers and acquisitions [M&A] has become a means for firms to acquire, absorb and exploit the knowledge assets of target firm. The present study investigates the relationship between M&A and innovation activities of pharmaceutical firms (post-M&A R&D intensity) for three post acquisition years and for average of three years. To analyze the impact, appropriate acquirer’s characteristics have been drawn from learning and innovation theory and financial economics theory. The findings of the paper suggest that acquisitions per se have a mixed impact on R&D intensity of firms in immediate post-acquisition years. Financial factors captured by leverage also appear to influence adversely the R&D intensity of acquiring firms. While technology imports through embodied capital goods boost acquiring firms’ R&D intensity, imports of disembodied technology lowers the need for R&D expenditure. Relatedness of target and acquiring firms and cross-border M&A, however, enhances R&D intensity in post-M&A period. This could imply that mergers and acquisitions of firms, if carried out in similar line of business, could boost innovative efforts in this industry in India.

Keywords: M&A; R&D intensity; Technology imports; Leverage; JEL classification: G34; C23; O32 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-981-10-1684-4_6

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