Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/178518
Authors: 
Dutta, Shantanu
Kumar, Vinod
Year of Publication: 
2009
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 2 [Year:] 2009 [Issue:] 1 [Pages:] 1-37
Abstract: 
In this study, we evaluate the impact of R&D intensity on acquiring firms' abnormal returns by examining 925 Canadian completed deals between 1993 and 2002 that have information on R&D expenditures. While examining the returns to acquiring firm shareholders in the R&D intensive firms we evaluate two competing hypotheses: 'growth potential hypothesis' and 'integration failure hypothesis'. According to the 'growth potential hypothesis', in light of the growth potential of the targets acquired by R&D intensive firms, investors are likely to react positively. 'Integration failure hypothesis' focuses on integration difficulties of a target by an R&D intensive firms and suggests that investor might be skeptical of such acquisitions and react negatively. Our results show that R&D intensity (i.e. R&D expenditure by sales) has a positive and significant effect on cumulative abnormal returns of the acquiring firms around the announcement dates. This implies that market generally favors the M&A deals by R&D intensive firms. An analysis of the differentiating characteristics reveal that R&D firms have a significantly higher growth potential and undertake more stock financed deals compared to the non R&D firms. Further, our results show that there is no significant change in long-term operating performance subsequent to the M&A deals for both R&D firms and non R&D firms. In general, our results show support for 'growth potential hypothesis'.
Subjects: 
Mergers and Acquisitions
R&D intensity
Abnormal returns
Long-term performance
JEL: 
G14
G34
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-sa/3.0/
Document Type: 
Article
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