The stock market's valuation of R&D and market concentration in horizontal mergers
This dissertation focuses on how R&D and market concentration influence the decision to merge and the merger outcome. It starts by examining the deal premium or amount above market value that acquirers pay for transactions that are challenged by the government for concentration concerns. The study isolates R&D-intensity and market concentration, and correlates their value individually and jointly to the value of the acquired company. The results indicate that change in market concentration and R&D is positively correlated to the deal premium. In addition, the study covers investor expectations regarding the impact of horizontal mergers that are challenged by the government. The study features an event study that examines the pattern of abnormal returns on merging companies and rivals relative to the key merger events (the announcement, complaint, and resolution). The results show that a pattern of abnormal returns can be explained by the different effects that antitrust complaints and merger outcomes have on rivals based on R&D intensity and change in industry concentration. This finding suggests that the government may have been properly vigilant in challenging mergers over the past 10 years in basic industries that have high levels of market concentration. However, it also may have allowed collusive mergers to proceed in R&D intensive industries. Finally, the study examines the effect that mergers have on future R&D expenditures. The study analyzes the differences in R&D expenditures based on whether firms engage in challenged or non-challenged mergers or do not undertake a significant acquisition. It also looks at the effect of mergers on R&D investment in selected industries. The results show that while mergers across industries do not appear to effect R&D investments, R&D activity appears to decline among challenged mergers in the life sciences industry while it increases in the high tech industry.