Unpatented innovation and merger synergies

M.D. Beneish, C.R. Harvey, A. Tseng*, P. Vorst

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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Abstract

The increasingly service-based U.S. economy relies on innovation. While there is considerable research on the importance of certain innovative activities, such as patents, less attention has been paid to unpatented innovation, about which there is naturally less publicly available information. Our study exploits disclosure on the fair value of acquired innovation to show that unpatented innovation plays an important, though often ignored, role in merger value creation. We detail the importance of unpatented technology and show that traditional approaches that rely only on R&D expenditures and patents lead to both misclassification of merger types and underestimates of the impact of innovation in value creation. Our evidence suggests that, on average, unpatented innovation accounts for a larger portion of synergies. We further show that higher (lower) gains accrue to the acquirer (the target) in relation to unpatented innovation, consistent with limited publicly available information about unpatented innovation reducing the target’s bargaining power.
Original languageEnglish
Number of pages39
JournalReview of Accounting Studies
DOIs
Publication statusE-pub ahead of print - 9 Nov 2021

JEL classifications

  • g32 - "Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill"
  • g34 - "Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance"
  • m40 - Accounting and Auditing: General

Keywords

  • Intellectual property
  • Intangibles
  • R&D
  • Technology
  • Non-patented innovation
  • Trade secrets
  • Innovation
  • Purchase price allocations
  • Acquisitions
  • Mergers
  • Synergies
  • RESEARCH-AND-DEVELOPMENT
  • INTELLECTUAL PROPERTY
  • OPERATING PERFORMANCE
  • STOCK-MARKET
  • CREATE VALUE
  • FIRM SIZE
  • INFORMATION
  • RETURNS
  • PATENT
  • ACQUISITIONS

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