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M&A effects on innovation and profitability in large European firms

Sara Fernández (Faculty of Economics and Business Administration, University of Castilla-La Mancha, Albacete, Spain)
Ángela Triguero (Faculty of Economics and Business Administration, University of Castilla-La Mancha, Albacete, Spain)
Esteban Alfaro-Cortés (Faculty of Economics and Business Administration, University of Castilla-La Mancha, Albacete, Spain) (Quantitative Methods and Socio-economic Development Group, Institute for Regional Development (IDR), University of Castilla-La Mancha, Albacete, Spain)

Management Decision

ISSN: 0025-1747

Article publication date: 12 July 2018

Issue publication date: 8 January 2019

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Abstract

Purpose

The purpose of this paper is to explore the effects of mergers and acquisitions (M&As) on innovation and profitability in large European firms.

Design/methodology/approach

Using information from a unique micro-longitudinal database of top European R&D investors and information from the European Commission (EC) Merger Control Authority, dynamic panel estimations with firm-level fixed effects are performed. Moreover, the paper presents a qualitative case study of a merger in the European electronic and electrical equipment industry.

Findings

The analysis of a sample of 562 M&As authorized by the EC Merger Control Authority shows that mergers positively influence the R&D intensity and profitability of top companies in the European Union over the period 2004–2012. Furthermore, empirical evidence shows that the timing and magnitude of these effects differs. In particular, the positive effect of mergers on R&D intensity is found for the short and large term while they influence profitability only in the large term.

Originality/value

This paper makes several contributions. First, unlike other studies on this topic, it investigates the effects of M&As using firm-level panel data on the top 1,000 European R&D companies instead of only examining a case study. Second, a unique data set has been used, which collects information on large European firms from the European Industrial R&D Investment Scoreboard and the EC antitrust authority. Finally, the paper accounts for the casual link between innovation effort and profitability when evaluating the potential effect of M&As on the R&D intensity and profitability of large European firms.

Keywords

Citation

Fernández, S., Triguero, Á. and Alfaro-Cortés, E. (2019), "M&A effects on innovation and profitability in large European firms", Management Decision, Vol. 57 No. 1, pp. 100-114. https://doi.org/10.1108/MD-08-2017-0730

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited