Two Essays on Product Market Competition, Corporate Innovation, and Mergers and Acquisitions

兩篇關於產品市場競爭, 企業創新及公司併購的論文

Student thesis: Doctoral Thesis

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Award date14 Jun 2018

Abstract

This dissertation is composed of two essays, both focused on the interaction between product market competition, corporate innovation and mergers and acquisitions (M&A) in Finance.

The first essay revisits the relation between market competition and innovation. Using patents, citations and R&D as measures for innovation, and text-based metric for competition, I find that firms in more concentrated markets file more patents and receive more future citations, but they do not spend significantly more on R&D. I identify two possible channels to explain the relation: First, the innovative strategies for firms in more concentrated markets are more exploitative than explorative, and they focus on more familiar and crowed areas of technology, to prop up the innovative outcomes. Second, I provide evidence that a firm’s takeover activities could affect the firm’s innovation incentives, and it is competition environment dependent. The innovative incentives by firms in highly competitive environment are greatly disrupted by their takeovers activities, and these firms decelerate their novel projects after acquisitions, while innovative efforts by firms in less competitive markets are more immune to takeovers. Evidence from the inventor-level provides clues on the difference. Finally, this study further finds that firms generally acquire targets with similar competition levels.

The second paper details a newly developed measure for market threat from product market in corporate takeover setting. Using fluidity as the measure for market threatening, I find that firms facing more market threats ended with lower announcement returns in M&A. Furthermore, my empirical evidence indicates that after M&A, acquirers in highly fluid market enjoy less threatening environment while firms from lowly fluid market experience more instabilities in competition environment. Importantly, I document a new dimension of acquirer-and-target pairing issue in M&A. I show that firms in less stable market are more likely to become acquirers, and firms generally takeover firms located in similar environment of market threatening, even with market competition and firm valuation factors controlled.

    Research areas

  • Product market competition, Corporate innovation, Mergers and Acquisitions