Stock Market Valuation, Profitability and R&D Spending of the Firm: The Effect of Technology Mergers and Acquisitions
Journal
Journal of Business Finance and Accounting
ISSN
0306-686X
ISSN-Digital
1468-5957
Type
journal article
Date Issued
2009-09
Author(s)
Abstract
In this paper, we investigate whether a firm can enhance the effect of its R&D spending on its current market value and future profitability through technology-oriented M&As. On the basis of an analysis of 1,879 M&As, we find that when a technology firm acquires another technology firm, the magnitude of the stock price response to the R&D spending of an acquirer increases by 107% in the year of the M&A. In contrast, we find no such increase in the stock price response to the R&D spending of a non-technology acquirer. We also find that technology acquirers are more successful in converting their R&D spending into positive future profitability than non-technology acquirers. Our results are robust for different alternative specifications of our model and when various firm differences are controlled for.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Blackwell
Publisher place
Oxford
Volume
36
Number
7-8
Start page
838
End page
862
Pages
25
Subject(s)
Division(s)
Eprints ID
219930