M&A effects on innovation and profitability in large European firms

Purpose The purpose of this paper is to explore the effects of mergers and acquisitions (M&As) on innovation and profitability in large European firms. Design/methodology/approach Using information from a unique micro-longitudinal database of top European R&D investors and information from the European Commission (EC) Merger Control Authority, dynamic panel estimations with firm-level fixed effects are performed. Moreover, the paper presents a qualitative case study of a merger in the European electronic and electrical equipment industry. Findings The analysis of a sample of 562 M&As authorized by the EC Merger Control Authority shows that mergers positively influence the R&D intensity and profitability of top companies in the European Union over the period 2004-2012. Furthermore, empirical evidence shows that the timing and magnitude of these effects differs. In particular, the positive effect of mergers on R&D intensity is found for the short and large term while they influence profitability only in the large term. Originality/value This paper makes several contributions. First, unlike other studies on this topic, it investigates the effects of M&As using firm-level panel data on the top 1,000 European R&D companies instead of only examining a case study. Second, a unique data set has been used, which collects information on large European firms from the European Industrial R&D Investment Scoreboard and the EC antitrust authority. Finally, the paper accounts for the casual link between innovation effort and profitability when evaluating the potential effect of M&As on the R&D intensity and profitability of large European firms.