Business groups, strategic acquisitions and innovation

Carlo Altomonte, Nevine El-Mallakh and Tommaso Sonno

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We build a novel worldwide database merging information on patent-citations of firms paired with information on firms' affiliation to Business Groups (BGs). We exploit these data to document how BGs appropriate knowledge through standalone firm acquisition. First, we confirm that innovative standalone firms have a higher probability of becoming part of a BG. Second, we document how BGs tend to acquire firms that are on an upward trend in patents and citations. We also show that innovating activity significantly deteriorates post-acquisition, particularly for firms with high-quality, cited patents. Third, we show that such a deterioration in innovation activity is driven by acquired firms patenting within the same technological classes of the acquiring BG, while the latter does not hold for acquired firms patenting in different technologies than the BG's. We also find that acquisitions occurring in environments characterized by higher market concentration and more mature leading firms are associated with a relatively more pronounced reduction in innovation. These results generalize the defensive acquisition narrative, suggesting that BGs leverage these transactions as a strategic manoeuvre to solidify their market position in the face of potential competition.

Keywords: business groups; innovation (search for similar items in EconPapers)
Date: 2024-04-30
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-ino, nep-sbm and nep-tid
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