Abstract
We investigate how intangible assets in the form of R&D influence firms’ hazards of engaging in international acquisitions. On the one hand, previous research has noted that the tacit and redeployable nature of R&D investments may prompt firms to expand their operations overseas and create value from international acquisitions. On the other hand, it is difficult for other firms to evaluate the quality and prospects of an acquirer’s intangible resources, thereby hampering its ability to finance and execute international M&A deals. In the context of international acquisitions undertaken by firms just completing their initial public offerings (IPOs), we argue and find that the IPO firm’s engagement in post-IPO international acquisition activity is generally negatively related to its R&D intensity. This effect contrasts previous arguments on the internalization advantages possessed by R&D-intensive firms. We also argue that firms able to convey their resources and prospects through such signals as previous international alliances and foreign sales can mitigate information problems presented by their intangibles, and thus carry out and benefit from cross-border acquisitions. We therefore identify an unexamined tradeoff that R&D investments present in the international M&A context and discuss how international signals can facilitate cross-border transactions subject to various market frictions.
Highlights
Given the information problems caused by research and development (R&D) investments, we propose that the international signals of an initial public offerings (IPOs) firm will positively moderate the relationship between its R&D intensity and the hazard of its post-IPO international acquisition
Thirty-three percent of the IPO firms in the high-tech industry were involved in international acquisitions after going public, which is consistent with prior research indicating that high-tech IPO firms are generally more involved in acquisitions (Hovakimian and Hutton 2010)
We investigate the role of R&D intensity in international acquisitions by IPO firms
Summary
Innovation activities are recognized to be especially critical to a firm’s international expansion, because any costs related to R&D have already been incurred and such resources can be transferred across various markets (e.g., Kotabe 1990; Delios and Beamish 1999; Caves 2007). Supporting this proposition, empirical evidence demonstrates that a firm’s cross-border operations are positively associated with investment opportunities arising from the firm’s endowment of intangibles such as R&D (e.g., Fiegenbaum et al 1997; Delios and Beamish 1999; Hitt et al 2006; Filatotchev and Piesse 2009; Frésard et al.2017). Substantial research identifies the many benefits that investments in
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