Corporate Innovations and Mergers and Acquisitions



  • KAI LI

    Search for more papers by this author
    • Jan Bena and Kai Li are at the Sauder School of Business, University of British Columbia. We thank Cam Harvey (the Editor), an anonymous referee, an anonymous Associate Editor, Anup Agrawal, Ken Ahern, Julian Atanassov, Gennaro Bernile, Simon Firestone, Kathleen Hanley, Jarrad Harford, Keith Head, Jerry Hoberg, Marcin Kacperczyk, Jon Karpoff, Ambrus Kecskés, Ron Masulis, Michael Meloche, Gordon Phillips, Shinichi Sakata, Amit Seru, Anju Seth, Shang-jin Wei, Shan Zhao, seminar participants at BlackRock, CERGE-EI, Chinese University of Hong Kong, Federal Reserve Board of the Governors, Fudan University, Office of the Comptroller of the Currency, Shanghai Jiaotong University, Shanghai University of Finance and Economics, University of Alabama, University of Hong Kong, UIBE, Virginia Tech, Xian Jiaotong University, and conference participants at the Pacific Northwest Finance Conference (Seattle), the Financial Intermediation Research Society Conference (Sydney), the UBC Summer Finance Conference (Vancouver), the Northern Finance Association Meetings (Vancouver), the 8th Annual Corporate Finance Conference at Washington University in St. Louis, the 24th Australasian Finance and Banking Conference (Sydney), and the American Finance Association Meetings (Chicago) for helpful comments. We also thank Milka Dimitrova, Chang Jie Hu, Yan Jin, Kairong Xiao, and Feng Zhang for research assistance. We acknowledge financial support from the Social Sciences and Humanities Research Council of Canada (SSHRC). All remaining errors are our own.


Using a large and unique patent-merger data set over the period 1984 to 2006, we show that companies with large patent portfolios and low R&D expenses are acquirers, while companies with high R&D expenses and slow growth in patent output are targets. Further, technological overlap between firm pairs has a positive effect on transaction incidence, and this effect is reduced for firm pairs that overlap in product markets. We also show that acquirers with prior technological linkage to their target firms produce more patents afterwards. We conclude that synergies obtained from combining innovation capabilities are important drivers of acquisitions.