Working paper
Process Innovation and the Corporate Control Market
SSRN
04/21/2023
Abstract
We show that specificity of process innovation affects merger decisions. We measure the composition of a firm’s innovation portfolio by machine-reading 90 million patent claims and show that firms with a higher share of process innovation generate more firm-specific knowledge: they are more likely to cite their own past patents, employ inventors who have more within-firm patenting experience, and exploit technologies already known to them rather than explore new ones. While process innovation is value-enhancing for the stand-alone firm, its specificity reduces synergistic gains from an acquisition. We find robust evidence that process innovators are significantly less likely to be acquired. Consistent with the specificity explanation, the negative effect of process innovation on acquisition likelihood is dampened if the bidder manufactures similar products and, therefore, can apply the target’s innovative processes to its own product line. Our study provides the first large-sample evidence on the fungibility of innovation and its impact on mergers and acquisitions.
Details
- Title: Subtitle
- Process Innovation and the Corporate Control Market
- Creators
- Umang KhetanAmrita Nain
- Resource Type
- Working paper
- Publisher
- SSRN
- Number of pages
- 53 pages
- Alternative title
- Process Innovation
- Language
- English
- Date posted
- 04/21/2023
- Date updated
- 02/16/2024
- Academic Unit
- Finance
- Record Identifier
- 9984582458502771
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