Innovations and Earnings Non-Synchronicity: Evidence from Industry M&A Activities

Date
2020-08-16
Authors
Chou, Shih-Chu
Chu, Yu-Fang
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Abstract
This paper investigates how earnings non-synchronicity impacts associated with firm-level research and development (R&D) investment vary as a function of industry-level merger and acquisition (M&A) intensity. Investing in R&D enables firms to differentiate and gain competitive advantages; differentiation strategies increase idiosyncratic variation in firms' earnings. We bring in an industry-level contextual variable, industry-level M&A, and show that the positive relationship between R&D investment and earnings non-synchronicity is increasing in the intensity of inside-industry but not outside-industry M&A, consistent with our conjecture that M&A within an industry facilitates an expansion of knowledge base and induces more innovative R&D through complementary effects.
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Keywords
Earnings Non-Synchronicity, Innovations, Industry M&A Activities
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