Chapter 4: Literature Review
Reinhilde Veugelers While Chapters 2 and 3 indicate that many Mergers and acquisitions (M&A) have an innovation related motivation, the link between M&A and research and development (R&D) is, despite its importance, less well examined, at least directly. The scarcity of ‘know-how’ on this issue is in contrast with the wide theoretical literature that exists on motives for M&A and the large number of empirical studies of M&A which focus on the link with shareholder value and economic performance. In section 4.1 we will very brieﬂy review the mainstream theoretical and empirical M&A literature, using their main ﬁndings as a prelude to gaining a greater understanding on the innovation related issues, tackled in sections 4.2 and 4.3. 4.1 THEORIES AND EVIDENCE ON WHY M&A OCCUR The frequency with which M&A activities are observed suggest that there are strong reasons why it makes sense for two (or more) ﬁrms to consolidate into one or for one ﬁrm to purchase another. Typical motives identiﬁed in the theoretical Industrial Organization literature are the desire to achieve or strengthen market power and the search for eﬃciency gains by being able to exploit economies of scale and scope (Caves 1989, Röller et al. 2001). The Financial Economics (market for corporate control) literature suggests that M&A are used to correct internal ineﬃciencies, agency problems and capital market imperfections (Manne 1965, Jensen and Ruback 1983). Nevertheless, despite the many advantages M&A could...
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