Effect of cross-border mergers and acquisitions on technological innovations
1. Introduction
1.1. Background
A desire to obtain know how or new technological innovations is often suggested to be one of the main reasons behind merger activities (Jovanovic and Rousseau, 2002). Similar to shocks that shake and heal the economic environment, technological shocks are able to reallocate market factors optimally, and mergers and acquisitions (M&As) act as an effective instrument to settle the new equilibrium (Hall, 1988; Jovanovic and Rousseau, 2002). In such reorganisation periods, companies undertake M&As to attain growth, to get the economies of scale, to mitigate industry competition and implement internal organisational rebuilding. The significance of M&As as a means for fostering and reorganising research and development (R&D) activities was underlined by Cassiman et al. (2005).
M&As can act as a productive channel for technological innovations, or for reinforcing technological core competencies. An acquisition deal may allow the firm to attain the research vanguard in their sphere of competence (Kamien, 1992). Moreover, overlapping research spheres can compel the owners of patents to intensify research efforts (O’Donoghue et al., 1998) and M&As can be undertaken to get access to the patent portfolio of a rival company. Thus, companies can consolidate their technological competencies and reinforce their market power in particular technological spheres via M&As.
Conversely, companies can deem M&As as a means to capture new markets since diversification mitigates risk (Frey and Hussinger, 2006). In addition to this, a certain level of technological diversification is needed to keep pace with fast technological innovations in different spheres (Cantwell et al., 2004).
Technological knowledge in auxiliary spheres on top of key competencies allows companies to implement and integrate technologies developed by rivals. Expertise in non-core technologies enables companies to comprehend nascent technological opportunities and promptly switch to perspective innovative trends (Prabhu et al. 2005). Given a growing significance of timing in innovation process and severe technology rivalry, firms are not always able to accumulate own competencies in proper time. Thus, M&As, in overall, appear to be an effective instrument for both, technological reorganisation and a reinforcement of extant technological competencies. Moreover, M&As allow for optimising the costs of R&D by eliminating duplicate functions.
However, Yoon and Lee (2016) emphasise that empirical evidence on incentives of cross-border mergers connected with R&D motives is rather scarce. Some papers explored the influence of the R&D intensity on the probability of participating in the M&A market in any role (Hall, 1990, Puranam et al., 2006). The common standpoint of these papers seems to be that R&D is a comparatively weak indicator of being a target of acquisition (Hall, 1988). Several papers, both theoretical and empirical, underlined the significance of characteristics of merged companies and their interaction for the success of post-merger innovations (Seth, 1990; Capron, 1999; Banal-Estanol and Seldeslachts, 2005).
Cassiman et al. (2005) explored 31 merger cases regarding the changes in R&D performance in post-merger period to indicate that merger partners with substitutive and complementary technologies exhibited different post-acquisition R&D activities. In particular, merger for companies with complementary technologies tended to stimulate R&D activities while M&A deals for the case of firms with substitutive technologies hindered R&D efforts after the merger. Hussinger (2005) examined the role of technological affinity between the merger partners and concluded that M&As were likely to be preferred by firms from the same industry and with similar technological profile. In this case, M&As were shown to enhance core competencies of the acquirer. Confirming these findings, Stiebale (2013) revealed that after a cross-border acquisition, German companies tender to intensify domestic R&D activities and increase spending in this sphere. In addition, Zhang et al. (2018) made several significant findings on the topic. First, the authors revealed for a sample of Chinese firms, that cross-border M&A deals substantially enhanced the acquirers’ innovation performance. Second, industrial policies were shown to negatively influence the association between cross-border M&As and the acquirers’ R&D activities. Third, the mediating influence of intellectual property protection was exhibited to be unstable. Fourth, the impact of state-owned equity on the linkage between cross-border acquisitions and the acquirers’ innovation efforts appeared to be negative. Finally, Ojanen et al. (2008) indicated that the key goals of most cross-border acquisitions were to expand the market or product portfolio, which were not necessarily related to R&D activities.
1.2. Motivation of Research
Given comparatively scarce empirical evidence on the topic and diversity of reported results, the motivation of the research is the following. It is important not only to estimate the relationship between M&A activities and further innovation performance in cross-border acquisitions, but also to clarify the specific effects and channels through which M&As influence R&D efforts. It is also interesting to understand what particular characteristics of the acquiring companies stimulate post-merger R&D performance. The outcomes of this analysis will be interesting for companies operating on the global scale and firms that are planning to participate in M&A deals for achieving better results.
1.3. Aim and Objectives
The main purpose of the study is to assess the relationship between cross-border M&A activities and further technological innovations of consolidated companies. To attain this aim, the following objectives are pursued:
– To identify the main channels through which M&As affect post-merger R&D activities;
– To estimate the relationship between M&A deals and further acquirers’ performance in the sphere of technological innovations;
– To determine which characteristics of the acquiring companies have a significant impact on the success of R&A efforts in the post-merger period;
– To make recommendations on how to stimulate technological innovations in merged companies.
1.4. Outline
The structure of the thesis is the following. Literature review covers the main theories on which the research is based and reports the most significant findings on the relationship between cross-border M&A activities and R&D performance. The methodology chapter reveals how the research has been conducted. The chapter on results and findings outlines what outcomes of the research have been obtained and how they are interpreted. Finally, conclusions chapter summarises the thesis, outlines limitations and makes recommendations to companies and future researchers.
References
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