DP5275 Effects of Acquisitions on Product and Process Innovation and R&D Performance

Author(s):	Elena Cefis, Stephanie Rosenkranz, Utz Weitzel
Publication Date:	October 2005
Keyword(s):	cost reduction, dynamic efficiency, innovation, mergers and acquisitions, product differentiation
JEL(s):	C72, L1, L13, O32
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=5275

Using a game theoretical model on firms' simultaneous investments in product and process innovation, we deduct and empirically test hypotheses on the optimal R&D portfolio, investment, performance, and dynamic efficiency of R&D for acquisitions and in independently competing firms. We use Community Innovation Survey data on Italian manufacturing firms. Theoretical and empirical results show that firms involved in acquisitions invest in different R&D portfolios and invest at least as much in aggregate R&D as independent firms. The empirical results do not support our hypothesis on dynamic efficiency since acquisitions lead to inferior R&D performance.