Acquisition and diffusion of technology innovation

In the first essay, I examine value created through external acquisition of nascent technology innovation. External acquisition of new technology is a growing trend in the innovation process, particularly in high technology industries, as firms complement internal efforts with aggressive acquisition programs. Yet, despite its importance, there is little empirical research on the timing of acquisition decisions in high technology environments. I examine the impact of target age on value created for the buyer. Applying an event study methodology to technology acquisitions in the telecommunications industry from 1995 to 2001, empirical evidence supports acquiring early in the face of uncertainty. The equity markets reward the acquisition of younger companies. In sharp contrast to the first essay, the second essay examines the diffusion of negative innovations. While destruction can be creative, certainly not all destruction is creative. Some is just destruction. I examine two fundamentally different paths to information security compromise an opportunistic path and a deliberate path. Through a grounded approach using interviews, observations, and secondary data, I advance a model of the information security compromise process. Using one year of alert data from intrusion detection devices, empirical analysis provides evidence that these paths follow two distinct, but interrelated diffusion patterns. Although distinct, I find empirical evidence that these paths both converge and escalate. Beyond the specific findings in the Internet security context, the study leads to a richer understanding of the diffusion of negative technological innovation. In the third essay, I build on the second essay by examining the effectiveness of reward-based mechanisms in restricting the diffusion of negative innovations. Concerns have been raised that reward-based private infomediaries introduce information leakage which decreases social welfare. Using two years of alert data, I find evidence of their effectiveness despite any leakage which may be occurring. While reward-based disclosures are just as likely to be exploited as non-reward-baed disclosures, exploits from reward-based disclosures are less likely to occur in the first week after disclosure. Further the overall volume of alerts is reduced. This research helps determine the effectiveness of reward mechanisms and provides guidance for security policy makers.Ph.D.Committee Chair: Sabyasachi Mitra; Committee Member: Frank Rothaermel; Committee Member: Sandra Slaughter; Committee Member: Sridhar Narasimhan; Committee Member: Vivek Ghosa

The Impact of Foreign Acquisitions on the Investors‘ R&D Activities – Firm-level Evidence

This paper provides empirical evidence on the relationship between cross-border acquisitions and innovation activities at the fi rm level. In contrast to previous studies that analyze the eff ects on innovation in target fi rms, this paper investigates the eff ects on the investing fi rms. For the empirical analysis a unique fi rm-level data set is constructed that combines survey data for German fi rms with a merger and acquisition database. After a cross-border acquisition, investing fi rms display a higher rate of domestic expenditures for research and development. After controlling for endogeneity of foreign acquisitions by estimating a two-equation system with limited dependent variables and applying instrument variable techniques it is found that part of this correlation stems from a causal eff ect. The estimated eff ects are robust towards alternative identifi cation strategies and are higher in industries with high knowledge intensity. The analysis is complemented by an investigation of the eff ects on tangible investment spending and by a comparison of the eff ects of cross-border acquisitions to those of Greenfi eld foreign direct investments and domestic M&As.Multinational enterprises; mergers and acquisitions; innovation

High growth firms, innovation and competition: the case of the US pharmaceutical industry

Innovation is key to economic growth. But firms, across sectors and regions, are highly skewed in their ability to engage with innovation, and even more skewed in their ability to translate investments in innovation into higher growth. While there was initially much attention on 'small' firms (SMEs), due to the assumption that they are more entrepreneurial and innovative, recent evidence that small firms contribute less to innovation and employment than commonly believed, has caused attention to move towards 'high growth innovative' firms (HGF). There is, however, the risk that this newly emphasized category of firms is also being 'hyped up' given how short a time period 'high growth' lasts, and how 'high growth' appears to only be important when combined with other firm specific conditions. Our paper is dedicated to exploring under what conditions high growth firms matter, in a dynamic setting over the history of the US pharmaceutical industry from 1963-2002. Following Coad and Rao (2008), we use quantile regression techniques to study the R&D-growth relationship in high growth firms compared to low growth firms. We find that the relationship is influenced by a mix of firm level characteristics including R&D intensity, R&D scale and venture capital funding. But more importantly we find that this relationship is sensitive to the changing competitive environment over the industry's history

Effects of foreign acquisitions on financial constraints, productivity and investment in R&D of target firms in China

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.This paper examines whether foreign acquisitions lessen financial constraints, improve investment in research & development (R&D) and productivity of the target firms in China based on a sample of 914 cross-border mergers and acquisitions (CBM&A) over the period of 1994-2011. Using investment to cash-flow sensitivity to measure financial constraints, we find that foreign acquisitions in China are associated with a reduction of target firms’ financial constraints, irrespective of the ownership type of the target firm. However, the extent of financial constraint reduction is pronounced for non-SOEs compared to state-owned enterprises (SOEs). This study also provides evidence that foreign acquisitions improve Chinese target firms’ productivity and investment in R&D

Building and Blocking: The two faces of techology acquisition.

firm acquisitions; technology; patents; blocking patents;

Building and Blocking: The Two Faces of Technology Acquisition

Gaining access to technological assets and patents, in particular, has long been a major motive and objective for firm acquisitions. On the one hand, patents are used as a building instrument for the acquirer's technology portfolio. On the other hand, patents can be attractive because of their strategic value as a bargaining chip, e.g. in licensing negotiations. This is especially the case if patents have the potential to block competitors. Drawing on transaction cost economics and the resource-based view of the firm, we analyze the importance of these two faces of technology acquisition for the valuation of a target firm. Empirical evidence for European firm acquisitions in the period from 1999 to 2003 indicates that the price paid by an acquirer for a target increases with the patent stock, the relatedness, the value and the blocking potential of the target's patents, especially if blocking patents are in technology fields related to the acquiring firm's patent portfolio. Our results have implications for competition authorities, in that M&A transactions may considerably impact technology markets. This would also need to be reflected in the management's technology strategy. --Firm acquisitions,technology,patents,blocking patents

Searching for Innovations ? The Technological Determinants of Acquisitions in the Pharmaceutical Industry

This article analyzes the individual determinants of acquisition activity and target choices in the pharmaceutical industry over the period 1978-2002. The "innovation gap" hypothesis states that acquiring firms lack promising drug compounds and acquire firms with more promising drug prospects. A duration model implemented over a panel of more than 400 firms relates the probabilities of being an purchaser or a target to financial, R&D ant patent data to investigate this explanation more deeply. Results show that purchasers are firms with a lower Tobin's Q and decreasing sales, which could indicate that acquisitions are used to compensate for low internal growth prospects. Firms with a higher proportion of radical patents in their portfolio, especially in pharmaceutical and biothechnological patent classes, face a higher probability of being targeted, indicating that acquiring firms are indeed searching for innovative competencies. However, acquiring firms also present a significant absorptive capacity : their R&D investment increases in the year preceding the operation and their patent stock is larger and more diversified than for non-acquiring firms. Finally, we observe that over the last ten years of the sample period, firms have paid a greater attention to the size of the target's portfolio.M&A, pharmaceutical, innovations, patent citations.

Entrepreneurial Human Capital, Complementary Assets, and Takeover Probability

Gaining access to technologies, competencies, and knowledge is observed as one of the major motives for corporate mergers and acquisitions. In this paper we show that a knowledge-based firm’s probability of being a takeover target is influenced by whether relevant specific human capital aimed for in acquisitions is directly accumulated within a specific firm or is bound to its founder or manager owner. We analyze the incentive effects of different arrangements of ownership in a firm’s assets in the spirit of the Grossman-Hart-Moore incomplete contracts theory of the firm. This approach highlights the organizational significance of ownership of complementary assets. In a small theoretical model we assume that the entrepreneur’s specific human capital, as measured by the patents they own, and the physical assets of their firm are productive only when used together. Our results show that it is not worthwhile for an acquirer to purchase the alienable assets of this firm due to weakened incentives for the initial owner. Regression analysis using a hand collected dataset of all German IPOs in the period from 1997 to 2006 subsequently provides empirical support for this prediction. This paper adds to previous research in that it puts empirical evidence to the Grossman-Hart-Moore framework of incomplete contracts or property rights respectively. Secondly, we show that relevant specific human capital that is accumulated by a firm’s founder or manager owner significantly decreases that firm’s probability of being a takeover target.ownership structure, property rights, mergers & acquisitions

The revealed preferences of high technology acquirers: an analysis of the characteristics of their targets

In this paper we investigate the motives of high-tech acquieres by analysing their revealed preferences in terms of the high-tech companies they acquire.mergers and acquisitions, acquisition likelihood, R&D patents