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Mergers and Acquisitions (M&AS) by R&D Intensive Firms
University of Ontario Institute of Technology, Faculty of Business and Information Technology, 2000 Simcoe Street North, Oshawa, ON, L1H 7K4, Canada
Sprott School of Business, Carleton University,1125, ON K1S 5B6, Canada
* Author to whom correspondence should be addressed.
Published: 31 December 2009
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
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MDPI and ACS Style
Dutta, S.; Kumar, V. Mergers and Acquisitions (M&AS) by R&D Intensive Firms. J. Risk Financial Manag. 2009, 2, 1-37.
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.
Dutta, Shantanu; Kumar, Vinod. 2009. "Mergers and Acquisitions (M&AS) by R&D Intensive Firms." J. Risk Financial Manag. 2, no. 1: 1-37.