Stock Market Valuation, Profitability and R&D Spending of the Firm: The Effect of Technology Mergers and Acquisitions

Authors

  • Juha-Pekka Kallunki,

    1. The first and second authors are from the Department of Accounting and Finance, University of Oulu, Finland. The third author is from the Department of Industrial Engineering and Management, Helsinki University of Technology, Finland. They gratefully acknowledge the valuable comments and suggestions on the earlier versions of this paper provided by an anonymous referee, Andrew Stark (editor), Hannu Ojala and Markku Rahiala. The authors also thank the seminar participants at the 31st Annual Congress of the European Accounting Association, 2007 Annual Conference of the European Financial Management Association, the 2nd EIASM Workshop on Visualising, Measuring, and Managing Intangibles and Intellectual Capital in 2006, the Faculty Research Workshop at the University of Oulu in 2006 and the 2006 Annual Workshop in Financial Accounting of the Finnish Graduate School of Accounting. They gratefully acknowledge financial support from Jenny and Antti Wihuri Foundation, the Finnish Funding Agency for Technology and Innovation, the Academy of Finland, the Tauno Tönninki Foundation, the Marcus Wallenberg Foundation, the Finnish Foundation for Economic and Technology Sciences KAUTE, the North Ostrobothnia Fund and Oulun Kauppaseuran säätiö.
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  • Elina Pyykkö,

    1. The first and second authors are from the Department of Accounting and Finance, University of Oulu, Finland. The third author is from the Department of Industrial Engineering and Management, Helsinki University of Technology, Finland. They gratefully acknowledge the valuable comments and suggestions on the earlier versions of this paper provided by an anonymous referee, Andrew Stark (editor), Hannu Ojala and Markku Rahiala. The authors also thank the seminar participants at the 31st Annual Congress of the European Accounting Association, 2007 Annual Conference of the European Financial Management Association, the 2nd EIASM Workshop on Visualising, Measuring, and Managing Intangibles and Intellectual Capital in 2006, the Faculty Research Workshop at the University of Oulu in 2006 and the 2006 Annual Workshop in Financial Accounting of the Finnish Graduate School of Accounting. They gratefully acknowledge financial support from Jenny and Antti Wihuri Foundation, the Finnish Funding Agency for Technology and Innovation, the Academy of Finland, the Tauno Tönninki Foundation, the Marcus Wallenberg Foundation, the Finnish Foundation for Economic and Technology Sciences KAUTE, the North Ostrobothnia Fund and Oulun Kauppaseuran säätiö.
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  • Tomi Laamanen

    1. The first and second authors are from the Department of Accounting and Finance, University of Oulu, Finland. The third author is from the Department of Industrial Engineering and Management, Helsinki University of Technology, Finland. They gratefully acknowledge the valuable comments and suggestions on the earlier versions of this paper provided by an anonymous referee, Andrew Stark (editor), Hannu Ojala and Markku Rahiala. The authors also thank the seminar participants at the 31st Annual Congress of the European Accounting Association, 2007 Annual Conference of the European Financial Management Association, the 2nd EIASM Workshop on Visualising, Measuring, and Managing Intangibles and Intellectual Capital in 2006, the Faculty Research Workshop at the University of Oulu in 2006 and the 2006 Annual Workshop in Financial Accounting of the Finnish Graduate School of Accounting. They gratefully acknowledge financial support from Jenny and Antti Wihuri Foundation, the Finnish Funding Agency for Technology and Innovation, the Academy of Finland, the Tauno Tönninki Foundation, the Marcus Wallenberg Foundation, the Finnish Foundation for Economic and Technology Sciences KAUTE, the North Ostrobothnia Fund and Oulun Kauppaseuran säätiö.
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* Address for correspondence: Juha-Pekka Kallunki, Department of Accounting and Finance, University of Oulu, PO Box 4600, FI-90014 University of Oulu, Finland.
e-mail: juha-pekka.kallunki@oulu.fi

Abstract

Abstract:  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.

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