R&D investment as a signal in corporate takeovers

✍ Scribed by M. Pilar Socorro

• Publisher: John Wiley and Sons
• Year: 2009
• Tongue: English
• Weight: 208 KB
• Volume: 30
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1456

✦ Synopsis

Abstract

The purpose of this paper is to analyze the effects that takeover threats have on firms' preacquisition R&D intensity. Critics of takeovers usually argue that takeover threats may reduce target firms' R&D investments. However, I find that target firms may increase R&D investment in order to signal their compatibility with the acquiring firm. The identity of the acquired firm depends on the market size and target firms' efficiency and compatibility. Through R&D investments, target firms may affect this result, signaling potential outsiders the kind of competition they may face, and forcing them to accept lower takeover offers. Copyright © 2009 John Wiley & Sons, Ltd.