PhD Thesis Title: Essays on R&D Collaboration, Innovation, Competition, and Mergers & Acquisitions
Supervisor: Professor Ronan Powell
External Examiner: Professor Helena Lenihan, University of Limerick
This thesis consists of three essays on innovation, research and development (R&D) collaboration, competition, and mergers and acquisitions (M&A). The first two essays focus on the impact of different economic variables, such as government direct funding and foreign cooperation, on a firm’s innovation performance, measured as both innovation inputs and innovation outputs. The third essay focuses on the impact of product market competition and innovation on a firm’s decision to undertake M&A and the post M&A performance.
The first study examines the impact of government funding on a firm’s future innovation performance. Using a panel dataset of over 2,600 Irish firms from 2003-2012, the study first shows that there is a strong selection effect in the grant-awarding decision of funding agencies. The result suggests that being awarded a grant facilitates an increase in a firm’s innovation inputs (measured by R&D spending and the number of in-house R&D employees). In terms of innovation outputs (measured by new product sales), past winners experience an increase in new product sales, while current winners do not, confirming the existence of a time lag from R&D investment to actual innovation outputs. The results are robust to propensity score matching, a technique used to mitigate endogeneity concerns arising from potential selection bias. In addition, the result suggests that the impact of government funding on a firm’s future innovation performance is moderated by the position of the firm in its industry. Specifically, top firms (in terms of market share) generate a larger increase in R&D spending than other companies, as measured over the three years after receiving an R&D grant.
The second study examines the impact of different national factors on a firm’s decision to cooperate with a foreign partner and the influence of foreign innovation cooperation on a firm’s future innovativeness. Using data for more than 20,000 firms across 12 European countries from the Community Innovation Survey (CIS, 2006), the study first shows that if a firm is from a country with stronger R&D intensity, better governance, and higher levels of competitiveness, there is a greater likelihood that it will engage in foreign innovation cooperation.
Further, the study finds a lower likelihood of foreign cooperation if a firm is from a highly innovative country (that is, a country with a larger patent portfolio). The essay finds evidence to confirm the results of prior research that the presence of a foreign partner in a firm’s cooperation network brings higher innovation outputs. However, when the sample is broken down into different groups based on the type of cooperation and employ a propensity viii score matching technique to match foreign cooperating firms with their similar counterparts, it is shown that foreign cooperation does not, on its own, result in any significant impact on innovation for a firm. Specifically, firms that only cooperate with foreign partners do not have higher innovation outputs than those that undertake domestic cooperation alone, or those that do not undertake any cooperation. The result indicates that it is only firms that engage in both domestic and foreign cooperation that appear to win. In addition, evidence suggests that national factors play an important moderating role in the relationship between foreign cooperation and innovation. The study also considers the argument that cooperation within the European Union (EU) should be considered ‘domestic’ for all EU firms.
The third study examines the impact of product market competition (PMC) and innovation on the likelihood of takeover, announcement returns, and post-takeover operating performance for over 8,000 takeovers by US acquirers between 1996 and 2013. Competition is measured using both the Herfindahl-Hirschman index (HHI) and large reductions in tariff rates. The first finding is that firms in competitive industries are more likely to undertake acquisitions, particularly consolidating deals. Within competitive industries, firms at the top of the industry in terms of market share are found to be more likely to pursue acquisitions to maintain their market power. The study shows that acquisitions improve long-run operating performance for firms in competitive industries three years after the deals are completed and that this effect is greater for top market share firms in competitive industries. The study also analyses the moderating role of a firm’s R&D and its position in the industry in these relationships. Interestingly, the study shows that, on average, firms that spend more on internal growth through R&D are less likely to undertake acquisitions. However, when under threat from competition, firms in competitive industries are more likely to implement both greater R&D investment and acquisitions. Interestingly, deals by firms at the bottom of competitive industries bring lower firm operating performance than deals by other bottom firms but from non-competitive industries.