Comparing Domestic and Cross-Border Mergers and Acquisitions in the Pharmaceutical Industry

Abstract

This paper considers the determinants and effects of domestic versus cross-border mergers and acquisitions (M&As) in the pharmaceutical industry. Results show that companies that have had large research and development (R&D) expenditures as a percentage of sales in the past, but which have not had a significant number of drug approvals in the previous five years, tend to merge with foreign firms. Domestic mergers are formed between two firms within the same country, which typically have lower R&D expenditures as a percentage of sales and drug approvals in the previous five years. In addition, results show that domestic mergers increase drug approvals in the short run, but the effect diminishes three years after an M&A is finalized. However, cross-border mergers, which occur between two companies from different countries, largely have long-lasting (five years or more) positive effects on new drug approvals.