Mergers and Innovation: The Case of the Pharmaceutical Industry

This paper takes a new look at the e¤ects of mergers on innovation by analysing the relationship between ex-ante technological (and product) relatedness of acquirers and targets and post-merger performances. The analysis is conducted using data on consolidations in the pharmaceutical industry for the period 1988-2004. Empirical results show that merger deals are more likely to be signed between …rms with related technologies and drug portfolio. I …nd that merged companies have on average, worst performances than the group of non-merging …rms and that, contrary to what may be the common wisdom, higher levels of technological relatedness are associated with poorer performances. Finally, consolidations between large pharmaceutical companies seem to have a detrimental impact on the incentives of competitors to undertake research in those therapeutic areas where both acquirer and target are active players. JEL classi…cation: L66, O31, O32.