Are M&As the new R&D? Evidence from world top R&D investors

Large companies face difficulties in keeping up with the ever increasing pace of technological change. Acquisitions seem to be replacing internal R&D as a strategy to remain competitive and continue to grow. When motivated by synergistic gains and/or complementary technologies, acquisitions may be positively correlated with acquirors’ R&D investment. However, there may be a substitution effect when acquiring smaller firms with similar technologies.

In this paper, we advance and test the hypothesis that M&As may the new form of R&D investment for companies that are larger but less R&D intensive. To test this hypothesis, we use the Industrial R&D investment Scoreboard dataset which provides financial data on the top 2500 world R&D investors and match it to data on M&A deals from Bureau van Dijk (Zephyr) and PATSTAT.