The Role of R&D in Cross-Border Mergers & Acquisitions

Abstract

This study examines the synergy and internalization hypotheses for international acquisitions using a sample of Australian companies with particular focus on the relationship between the synergistic gains and R&D capabilities of both the acquirer and target. We focus on three research questions: (1)Are significant cumulative abnormal returns observed for the Australian acquirers on announcement of cross-border acquisitions? (2)Are significant cumulative abnormal returns observed for R&D intensive Australian acquirers during cross-border acquisitions? and (3) Does R&D intensity explain cross sectional variation in wealth effects on announcement of cross-boarder acquisitions? We find that, overall, significant and positive cumulative abnormal returns are observed for the Australian acquirers in cross-border acquisitions, with the most pronounced effect apparent for R&D intensive Australian acquirers. Consistent with previous studies, target firm shareholders experienced positive and significant abnormal returns. Taken together, these results indicate the existence of synergistic gains, which are shared between acquirer and target shareholders. When we regress the target firms’ characteristics on acquirers CARs we find strong and consistent evidence of a positive influence of targets firms R&D intensity on acquirers CARs, suggesting shareholders’ wealth increases due to the increasing scale for which the target companies R&D intangible assets are applied. However, when target CARs are regressed on acquirers’ financials to explore whether acquirer characteristics can explain target wealth gains, acquirer firms’ R&D intensity is found to have a significant and negative effect of target firms’ CARs.