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J. Risk Financial Manag. 2009, 2(1), 1-37; doi:10.3390/jrfm2010001
Article

Mergers and Acquisitions (M&AS) by R&D Intensive Firms

1,*  and 2
Published: 31 December 2009
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Abstract

In this study, we evaluate the impact of R&D intensity on acquiring firms’ abnormal returns by examining 925 Canadian completed deals between 1993 and 2002 that have information on R&D expenditures. While examining the returns to acquiring firm shareholders in the R&D intensive firms we evaluate two competing hypotheses: ‘growth potential hypothesis’ and ‘integration failure hypothesis’. According to the ‘growth potential hypothesis’, in light of the growth potential of the targets acquired by R&D intensive firms, investors are likely to react positively. ‘Integration failure hypothesis’ focuses on integration difficulties of a target by an R&D intensive firms and suggests that investor might be skeptical of such acquisitions and react negatively. Our results show that R&D intensity (i.e. R&D expenditure by sales) has a positive and significant effect on cumulative abnormal returns of the acquiring firms around the announcement dates. This implies that market generally favors the M&A deals by R&D intensive firms. An analysis of the differentiating characteristics reveal that R&D firms have a significantly higher growth potential and undertake more stock financed deals compared to the non R&D firms. Further, our results show that there is no significant change in long-term operating performance subsequent to the M&A deals for both R&D firms and non R&D firms. In general, our results show support for ‘growth potential hypothesis’.
Keywords: Mergers and Acquisitions; R&D intensity; Abnormal returns; Long-term performance Mergers and Acquisitions; R&D intensity; Abnormal returns; Long-term performance
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Dutta, S.; Kumar, V. Mergers and Acquisitions (M&AS) by R&D Intensive Firms. J. Risk Financial Manag. 2009, 2, 1-37.

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