THE EFFECT OF MERGERS AND ACQUISITIONS ON INNOVATION PERFORMANCE: EVIDENCE FROM THE U.S. TELECOMMUNICATIONS INDUSTRY

Abstract

Technological innovation is a crucial aspect of the telecommunications industry. The advancement in technology has eliminated the barriers among many sectors within the industry, further propelled by the deregulation from the Telecommunications Act of 1996. Facing rapid development in technology, firms constantly seek innovation by investing in Research and Development (R&D) or pursuing Mergers and Acquisitions (M&A) in a competitive market. This paper explores the relationship between innovation and M&A and examines if the firm’s innovation performance is affected by participating in M&A. Using three different measures of innovation, this paper finds that M&A positively affects the firm’s innovation output as reflected by an increase in the number of patent grants, although the firm does not necessarily invest more in R&D or become more productive with R&D investment following the M&A transaction.