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Mergers and Acquisitions (M&AS) by R&D Intensive Firms
AbstractIn 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’.
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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.View more citation formats
Dutta S, Kumar V. Mergers and Acquisitions (M&AS) by R&D Intensive Firms. Journal of Risk and Financial Management. 2009; 2(1):1-37.Chicago/Turabian Style
Dutta, Shantanu; Kumar, Vinod. 2009. "Mergers and Acquisitions (M&AS) by R&D Intensive Firms." J. Risk Financial Manag. 2, no. 1: 1-37.