The effect of R&D spending on a firm’s profitability and market value in M&As: evidence from Nasdaq listed companies
Koski, Elisa (2021-09-03)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2021090345084
https://urn.fi/URN:NBN:fi-fe2021090345084
Tiivistelmä
Mergers and acquisitions have been part of companies’ strategies to improve their profitability and market valuation. The purpose of this study is to examine the effects of R&D expenditures on the acquirer’s profitability and stock market valuation in two different cases: when the acquiring firm is a technological company and a non-technological company. The target company for both is a technological company. Firstly, it is hypothesized that R&Ds of the acquirer enhance the stock market valuation more for technology acquirers than for non-technological counterparts. The comparison of stock market valuations is performed in the year when the company acquires a technological company. Secondly, this study shows how technological and non-technology acquirers can convert R&D spending into future profitability within one year after the M&A being completed.
The sample consist of 186 technological M&As and 50 M&As where the acquirer is a non-technological company. The chosen acquirers are Nasdaq listed companies which completed a merger or acquisition between 2010 and 2017. The methodology used is OLS regression analysis.
The key findings of the study reflect that in the year when the M&A is completed there is no correlation of R&D expenditures with stock price when a technological or a non-technological company acquires a technological company. The other important finding is that in the long run a technological company can convert R&D spending into future profitability more efficiently than a non-technological company by acquiring a technological company. Technological M&As have more potential to realize synergies after the M&A. During the year of the M&A R&D spending increase in both companies, which means that during the year of acquisition companies cannot utilize the synergies created from the acquisition of the technological company.
Keywords: mergers and acquisitions, R&D, profitability, stock market valuation
The sample consist of 186 technological M&As and 50 M&As where the acquirer is a non-technological company. The chosen acquirers are Nasdaq listed companies which completed a merger or acquisition between 2010 and 2017. The methodology used is OLS regression analysis.
The key findings of the study reflect that in the year when the M&A is completed there is no correlation of R&D expenditures with stock price when a technological or a non-technological company acquires a technological company. The other important finding is that in the long run a technological company can convert R&D spending into future profitability more efficiently than a non-technological company by acquiring a technological company. Technological M&As have more potential to realize synergies after the M&A. During the year of the M&A R&D spending increase in both companies, which means that during the year of acquisition companies cannot utilize the synergies created from the acquisition of the technological company.
Keywords: mergers and acquisitions, R&D, profitability, stock market valuation