Through overviewing the merger waves during the last century, we know the latest two waves result mainly from technological innovation. With the presence of M&A market, acquirers are able to gain innovation capacities by taking over innovative targets. Innovation is considered to be a source of synergies and a major motive for M&A decision. Therefore, my research focuses on whether acquisitions for innovation create value for investors in short-term and long-term perspective.
By using various innovation measures, I employ event study and calendar time portfolio to examine the significance of abnormal returns. I find the abnormal returns of bidding innovative targets do not show significant difference from the peers in short-term market reaction. However, in the long-run, the group with innovative targets reports significant abnormal returns. Under multiple regression analysis, I find patent counts, total citations, and citation-weighted patent counts have positive relation with abnormal returns under WLS procedure, while only average citation yields the most consistent result under both OLS and WLS. Lastly, I confirm the relation between abnormal return and average citation measure by employing calendar time portfolio approach.

1. Agrawal, Anup, and Jeffrey F. Jaffe, 2003, Do takeover targets underperform? Evidence from operating and stock returns. Journal of Financial and Quantitative Analysis 38, 721-746.
2. Barber, Brad M., John D. Lyon, 1997, Detecting long-run abnormal stock returns: The empirical power and specification of test statistics. Journal of Financial Economics 43, 341-372.
3. Bena, Jan, and Kai Li, 2011, Corporate innovations and mergers and acquisitions, Working paper, University of British Columbia.
4. Brown, Stephen J., and Jerold B. Warner, 1980, Measuring security price performance, Journal of Financial Economics 8, 205-258.
5. Chesbrough, Henry W., 2003, Open innovation: The new imperative for creating and profiting from technology, Harvard Business School Press, Boston.
6. Devos, Erik, Palani-Rajan Kadapakkam, and Srinivasan Krishnamurthy, 2009, How do mergers create value? A comparison of taxes, market power, and efficiency improvements as explanations for synergies, The Review of Financial Studies 22, 1179-1211.
7. Fama, Eugene F., 1997, Market efficiency, long-term returns, and behavioral Finance. Journal of Financial Economics 49, 283-306.
8. Hagedoorn, John, and Geert Duysters, 2002, External sources of innovative capabilities: The preferences for strategic alliances or mergers and acquisitions, Journal of Management Studies 39, 167-188.
9. Hagedoorn, John, and Geert Duysters, 2002, The effect of mergers and acquisitions on the technological performance of companies in a high-tech environment, Technology Analysis & Strategic Management 15, 67-85.
10. Hall, Bronwyn H., Raffael Oriani, 2006, Does the market value R&D investment by European firms? Evidence from a panel of manufacturing firms in France, Germany, and Italy, International Journal of Industrial Organization 24, 971-993.
11. Higgins, Matthew J., and Daniel Rodriguez, 2006, The outsourcing of R&D through acquisitions in the pharmaceutical industry, Journal of Financial Economics 80, 351-383.
12. Hitt, Michael A., Roberte E. Hoskisson, R. Duane Ireland, and Jeffrey S. Harrison, 1991, Effects of acquisitions on R&D inputs and outputs, Academy of Management Journal 34, 693-706.
13. Loughran, Tim, and Anand M. Vijh, 1997, Do long-term shareholders benefit from corporate acquisitions? The Journal of Finance 52, 1765-1790.
14. Martynova, Marina, and Luc Renneboog, 2008, A century of corporate takeovers: What have we learned and where do we stand? Journal of Banking & Finance 32, 2148-2177.
15. Mitchell, Mark L., and Erik Stafford, 2000, Managerial decisions and long-term stock price performance, The Journal of Business 73, 287-329.
16. Myers, Stewart C., and Nicholas S. Majluf, 1984, Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics 13, 187-221.
17. Rhodes-Kropf, Matthew, and David T. Robinson, 2008, The market for mergers and the boundaries of the firm, The Journal of Finance 63, 1169-1211.
18. Seru, Amit, 2010, Firm boundaries matter: Evidence from conglomerates and R&D activity, Working paper, University of Chicago.
19. Zhao, Xinlei, 2009, Technological innovation and acquisitions, Management Science 55, 1170-1183.