Monday, October 26, 2020
The increasingly service-based U.S. economy places a high reliance on innovation. While there is considerable research on the importance of certain innovative activities such as patents, less attention has been paid to un-patented innovation, about which there is naturally less publicly available information. Our research leverages a unique merger and acquisition database that reveals the fair values of targets’ innovative activities. We show that existing studies underestimate the contribution of innovation by exclusively focusing on patents. Our evidence, for example, shows that approximately three percent of merger synergy value is associated with patented innovation, whereas the less often studied un-patented innovation accounts for twelve percent of synergy gains.