Mergers and Innovation: Evidence from a Panel of U.S. Firms

Mahdiyeh Entezarkheir, Huron at Western University and Saeed Moshiri, University of Saskatchewan - Saint Thomas More College analyze Mergers and Innovation: Evidence from a Panel of U.S. Firms.

ABSTRACT: The impact of changes in market structure on innovation after mergers is a concern for anti-trust policies. However, studies on merger changes of innovation are limited. Combining four different data sets, we construct a unique panel data set of mergers among publicly traded U.S. manufacturing firms from 1980 to 2003 and investigate merger impacts on innovation controlling for endogeneity and factors such as market share, size, industry, and time. Our proxy for innovation is based on the citation-weighted patent stocks, which includes information on not only the merged entities in the post-merger period similar to previous studies, but also both target and acquiring firms in the pre-merger period and the merging year. We find that mergers are positively and significantly correlated with firms' innovation, and firms with large market share experience a greater boost in innovation from mergers. Merger effects on innovation are larger in the long-run and heterogeneous across industries. Our findings are robust to alternative measures of innovation.