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Stock Market Valuation, Profitability and R&D Spending of the Firm: The Effect of Technology Mergers and Acquisitions
Author(s) -
Kallunki JuhaPekka,
Pyykkö Elina,
Laamanen Tomi
Publication year - 2009
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2009.02161.x
Subject(s) - profitability index , valuation (finance) , monetary economics , stock (firearms) , economics , market value , stock price , stock market , tobin's q , business , financial economics , finance , mechanical engineering , paleontology , horse , series (stratigraphy) , engineering , biology
In this paper, we investigate whether a firm can enhance the effect of its R&D spending on its current market value and future profitability through technology‐oriented M&As. On the basis of an analysis of 1,879 M&As, we find that when a technology firm acquires another technology firm, the magnitude of the stock price response to the R&D spending of an acquirer increases by 107% in the year of the M&A. In contrast, we find no such increase in the stock price response to the R&D spending of a non‐technology acquirer. We also find that technology acquirers are more successful in converting their R&D spending into positive future profitability than non‐technology acquirers. Our results are robust for different alternative specifications of our model and when various firm differences are controlled for.