The impact of technology-motivated M&A and joint ventures on the value of IT and non-IT firms: a new examination

The impact of technology-motivated M&A and joint ventures on the value of IT and non-IT firms: a... We extend Lee and Lim (Rev Quant Financ Account 27:111–123, 2006) who provide empirical evidence on the impact of mergers and acquisitions (M&As) and joint ventures on the value of information technology (IT) and non-IT firms. Using technology-motivated transactions, we examine whether there are differences in market response to the announcement of M&As and joint ventures, and we consider the long-term performance of such firms. We find the market provides no (positive) reaction to joint ventures (M&As) at the announcement. We also present new evidence suggesting the market reacts more favorably to the announcement of technology M&As relative to joint ventures for our full sample, IT sample and non-IT sample. However, our examination of these firms’ long-term performance suggests the initial reaction is not fully supported. The findings suggest improved (declining) operating performance for joint venture (M&A) firms, and evidence to conclude joint venture firms achieve superior long-term performance changes for both accrual- and cash-based measures. To explain these inconsistencies, we employ a set of control variables previously documented as determinants of the innovation ownership decision. For joint venture firms, we find that, while the market fails to consider the importance of the firms’ R&D intensity and growth prospects in its initial reaction, these are ultimately key indicators of their future performance. The evidence also suggests the market overreacts to M&A announcements because it over-weights the impact of R&D intensity on the firms’ future performance in its initial response. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The impact of technology-motivated M&A and joint ventures on the value of IT and non-IT firms: a new examination

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Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0374-8
Publisher site
See Article on Publisher Site

Abstract

We extend Lee and Lim (Rev Quant Financ Account 27:111–123, 2006) who provide empirical evidence on the impact of mergers and acquisitions (M&As) and joint ventures on the value of information technology (IT) and non-IT firms. Using technology-motivated transactions, we examine whether there are differences in market response to the announcement of M&As and joint ventures, and we consider the long-term performance of such firms. We find the market provides no (positive) reaction to joint ventures (M&As) at the announcement. We also present new evidence suggesting the market reacts more favorably to the announcement of technology M&As relative to joint ventures for our full sample, IT sample and non-IT sample. However, our examination of these firms’ long-term performance suggests the initial reaction is not fully supported. The findings suggest improved (declining) operating performance for joint venture (M&A) firms, and evidence to conclude joint venture firms achieve superior long-term performance changes for both accrual- and cash-based measures. To explain these inconsistencies, we employ a set of control variables previously documented as determinants of the innovation ownership decision. For joint venture firms, we find that, while the market fails to consider the importance of the firms’ R&D intensity and growth prospects in its initial reaction, these are ultimately key indicators of their future performance. The evidence also suggests the market overreacts to M&A announcements because it over-weights the impact of R&D intensity on the firms’ future performance in its initial response.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Apr 9, 2013

References

  • New evidence and perspectives on mergers
    Andrade, G; Mitchell, M; Stafford, E
  • Does it pay to acquire technological firms?
    Chakrabarti, A; Hauschildt, J; Sueverkruep, C
  • The determinants of investor valuation of R&D expenditure in the software industry
    Chiang, C; Mensah, Y
  • Collaboration and innovation: a review of the effects of mergers, acquisitions, and alliances on innovation
    Man, A; Duysters, G
  • When does corporate venture capital investment create firm value?
    Dushnitsky, G; Lenox, M
  • Diversification dynamics of the Japanese industry
    Gemba, K; Kodama, F
  • Does operating performance really improve following corporate acquisitions?
    Ghosh, A

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