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Hilton Atlanta, Grand Ballroom C
American Finance Association
Mergers and Acquisitions
Friday, Jan. 4, 2019 8:00 AM - 10:00 AM
- Chair: Jun-Koo Kang, Nanyang Technological University
Merger Waves and Innovation Cycles: Evidence from Patent Expirations
AbstractWe investigate the link between innovation cycles and aggregate merger activity using data on patent expirations. To isolate the treatment effect of patent expirations, we focus on term expirations, which mandatorily occur at a pre-specified date. We find strong clustering in industry patent expirations (“patent expiration waves”). These patent waves trigger industry merger waves with lower announcement returns and worse long-term performance for acquirers, but higher announcement returns and larger premiums for targets. Acquirers also experience declines in profit margins, cash holdings and investment opportunities, while cutting costs in the year prior to a merger. Overall, we put forth a possible link, unexplored in the literature, between merger waves and patenting activity.
Product Market Dynamics and Mergers and Acquisitions: Insights from the USPTO Trademark Data
AbstractThis paper is one of the first to employ novel trademark data to shed light on whether and how M&As shape acquirers’ new product development and affect acquirers’ and target firms’ product offerings. Using a large and unique trademark-merger dataset over the period 1983-2016, we first show that companies with larger trademark portfolios, newer trademarks, and faster growth in trademarks are more likely to be acquirers, whereas companies with smaller trademark portfolios, and newer and more focused trademarks are more likely to be target firms. Further, firms with overlapping product lines are more likely to merge. Post-merger, compared to their non-acquiring peers, acquirers register fewer new trademarks, especially in classes common to both acquirers and targets, and in classes unique to target firms. Moreover, acquirers discontinue more acquirers’ and targets’ trademarks in common classes and classes unique to themselves, whereas discontinue fewer trademarks in classes unique to target firms. Finally, acquirers with a greater overlap in product lines to their target firms register even fewer trademarks in common classes and discontinue even more targets’ trademarks in common classes. We conclude that M&As provide an opportunity for acquirers to gain access to different products and to reduce overlapping product offerings.
AbstractWe investigate the advertising strategies of ﬁrms in mergers and acquisitions. Target ﬁrms increase their advertising expenses, on average, by 50% in the quarter before the announcement of a stock deal. Higher oﬀer prices for high-advertising target ﬁrms suggest product advertising being a tool to attract investors’ attention, which may result in tem-porarily increased stock prices. For acquiring ﬁrms, we observe no increase in advertising before but a signiﬁcant increase in the week after the announcement of a stock deal. The positive relation between acquirer advertising and the probability of deal completion indi-cates that advertising can positively inﬂuence target shareholders’ attitude towards the deal. Overall, our ﬁndings support the role of product market advertising as a strategic tool to aﬀect the outcomes of M&As.
Ohio State University
Michigan State University
- G3 - Corporate Finance and Governance