Examining the stock performance of acquirers where the acquirer or target hold patents

Kevin H. Kim (), Derek K. Oler () and Juan Manuel Sanchez ()
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Kevin H. Kim: University of Memphis
Derek K. Oler: Texas Tech University
Juan Manuel Sanchez: University of Texas at San Antonio

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 1, No 7, 185-217

Abstract: Abstract We investigate the stock returns for acquirers of firms holding registered patents (“innovative targets”). We find that acquiring innovative targets is associated with significantly positive stock performance relative to acquisitions of non-innovative targets. Specifically, acquirers of innovative targets enjoy higher announcement and interim period abnormal returns. Acquirers of innovative targets also enjoy higher post-acquisition returns, but only in settings where the acquirer’s and target’s industry is unambiguously close (i.e., they share the same 3-digit primary SIC code), suggesting that when the acquirer has familiarity and expertise in that industry the acquirer is able to better exploit the target firm’s patents. Additionally, we find that an acquirer’s innovation level can be critical to their post-acquisition stock performance; that is, acquirers holding at least one patent of their own prior to the acquisition enjoy significantly higher post-acquisition returns, and this benefit does not depend on the innovativeness of the target firm.

Keywords: Mergers and acquisitions; Innovation; Patents; Industry expertise; Synergy (search for similar items in EconPapers)
JEL-codes: G14 G34 O34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-020-00890-0

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