Avoiding the winner ’ s curse : The outsourcing of R & D through acquisitions in the pharmaceutical industry

For acquisitions characterized by information asymmetries, we find evidence consistent with the proposition that acquirers are able to avoid the winner’s curse. We examine the performance of acquirers of 160 biotechnology firms from 1994-2001 and find evidence that on average, the acquirers of biotech firms realize significant positive returns. These returns are positively correlated with acquirer access to information about the research and development activities at target firms and a superior negotiating position on the part of the acquirer. Further, we find that acquirers that use equity as payment and contingent payment contracts realize significant positive returns.