• M&A and R&D: The Relationship between R&D Stock, Technological Similarity and M&A Performance

Abstract

This paper expects to investigate the relation between M&A and R&D, and it formulates three main research issues. First, this paper will answer the question as to whether the M&A activities will improve the efficiency of a firm’s R&D activity (i.e., R&D input and innovation performance). Second, this paper will resolve that a firm adopted innovation-through-acquisition strategy how to create better performance. Hence, this paper will examine the influence of R&D stocks of acquirer and target firms and technological similarity on post-merger R&D outcome of the merging company. Third, this paper will compare the market performance model with the innovation performance model, in order to look for an appropriate indicator of M&A performance in high-tech industries.

This paper adopts the acquirer’s M&A events of Taiwanese high-tech industry as the sample, and the sample period from 1993 to 2007. Both paired-samples T test and multiple regression techniques have been used to examine the relationship between M&A and R&D. The results of paired-samples T test showed that post-merger R&D input and innovation performance is more than prior to the M&A. In addition, this paper used an event study method to estimate the cumulative abnormal return of M&A announcements in order to establish market-based performance model. And the change in innovation performance was measured as a proxy indicator of post-merger performance in order to constitute an innovation performance model. The results of both models found that the R&D stocks of acquirer firm will contribute to the post-merger performance. However, the relationship between R&D stocks of target firm and M&A performance is non-significance. The paper also found that the technological similarity negatively moderated the relationship between R&D stocks of acquirer and M&A performance. In addition, the results of this paper suggest that the innovation performance as a proxy of M&A performance is better than market-based performance.

Keywords: M&A, R&D stock, Technological similarity, R&D input, Innovation performance