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The Stock Market’s Valuation of R&D and Market Concentration in Horizontal Mergers

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Abstract

It is well documented that acquirers often pay a large premium to acquire companies in related industries. There are many explanations as to the source of this premium. This study isolates two variables, R&D-intensity and market concentration, and assesses their influence individually and jointly on the deal premium. The results indicate that higher market concentration levels have a negative effect on the deal premium, while higher acquirer R&D-intensity has a positive influence, if the merger could result in a high market concentration level. Furthermore, deal premiums are greater in selected industries and in smaller deal sizes.

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Authors and Affiliations

  1. Department of Economics, American University, 4400 Massachusetts Avenue, NW, Washington, DC, 20016, USA

    Ralph M. Sonenshine

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  1. Ralph M. Sonenshine

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Correspondence toRalph M. Sonenshine.

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