M&As and Innovation: A New Approach to Classifying Technology

Sara Amoroso and Ronald B. Davies

No 202511, Working Papers from School of Economics, University College Dublin

Abstract: A large literature considers the interplay between mergers and acquisitions (M&A) by multinationals and innovation, typically measured as patents. One theme that emerges is that technological similarity plays a role in which M&As occur. The challenge then becomes how to measure technological similarity. Typically, this is done by using either firms’ sectorsor the technological classifications of their patents. The first is a coarse measure of business activity and overlooks supply chains. The second may incorrectly match technical features with no overlapping business relation. In contrast, we offer an alternative based on a machine learning approach using patent technology descriptors. This decants over 600 technological codes into 21 technical business areas (TBAs). Similarity in this more parsimonious measure is highly related to the probability of a given M&A occurring. This provides a more intuitive approach to understanding the literature’s findings.

Keywords: Mergers and acquisitions; Technological similarity; Multinationals; Patents (search for similar items in EconPapers)
JEL-codes: F23 G34 O30 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2025-04
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