R&D and the Incentives from Merger and Acquisition Activity

Gordon Phillips and Alexei Zhdanov

No 18346, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide a model and empirical tests showing how an active acquisition market affects firm incentives to innovate and conduct R&D. Our model shows that small firms optimally may decide to innovate more when they can sell out to larger firms. Large firms may find it disadvantageous to engage in an "R&D race" with small firms, as they can obtain access to innovation through acquisition. Our model and evidence show that the R&D responsiveness of firms increases with demand, competition and industry merger and acquisition activity. All of these effects are stronger for smaller firms than for larger firms.

JEL-codes: G20 G3 G34 L11 L22 L25 O31 O34 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-com, nep-cse, nep-ino, nep-int, nep-ipr, nep-pr~, nep-sbm and nep-tid
Note: CF IO
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Citations: View citations in EconPapers (8)

Published as Gordon M. Phillips & Alexei Zhdanov, 2013. "R&D and the Incentives from Merger and Acquisition Activity," Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 34-78.

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