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Dr. Jan Bena

Sauder School of Business, University of British Columbia, Vancouver, Canada

Authors: Jan Bena and Kai Li

Abstract: Using a large patent-merger dataset over the period 1984-2006, we examine the motives and outcomes of acquisitions from the perspective of the property rights theory of the firm. Our measures of corporate innovation capture not only innovation quantity and quality, but also more importantly, asset complementarity that stem from technological overlaps between merger partners. We first show that more innovative companies, as measured by both patent quantity and quality, are more likely to engage in acquisition activities. Further, technological overlaps between the bidder’s and the target firm’s innovation activities as captured by technological proximity, common knowledge base, and patent cross-citations have positive and significant impact on merger pairing. Finally, we show that innovation-driven acquisitions achieve better long-term real outcomes: more impactful innovation output as well as improved operating and stock market performance. Overall, our evidence provides strong support for the property rights theory of the firm.

Full Text: “Corporate Innovations and Mergers and Acquisitions”