Technology centrality, bilateral knowledge spillovers and mergers and acquisitions

Jingong Huang, Taojun Xie

Research output: Journal PublicationArticlepeer-review

Abstract

We construct a search and matching model, which features heterogeneous firms with different management skills and industry-specific knowledge capital, to study individual firms’ behavior in the M&A market. Two firms form a merger if the bilateral knowledge spillovers between them result in a productivity gain, generating a merger surplus larger than the transaction cost. Three key predictions are produced from the model: (i) acquirers with higher technology centrality and management skill exert higher search intensities; (ii) targets with higher technology centrality and lower management skill exert higher search intensities; and (iii) acquirer–target firm pairs with larger bilateral knowledge spillovers generate larger surplus and are more likely to consummate a merger deal. We find strong empirical support for these predictions from merger deals in the U.S. between 1984 and 2020.

Original languageEnglish
Article number102366
JournalJournal of Corporate Finance
Volume79
DOIs
Publication statusPublished - Apr 2023

Keywords

  • Knowledge spillovers
  • M&A
  • Technology centrality

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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