Does R&D Drive Acquirers’firm Performance

This study investigates whether research and development(R&D)intensity influences the performance of Chinese acquiring enterprises.Investment in R&D is viewed as a fundamental driver of corporate performance.However,R&D expenditure may limit a firm’s ability to grow because it raises the level of risk that it faces.Mergers and acquisitions(M&A)are also seen as a driver of business performance and a means by which organizations respond to changing conditions.Even so,there are consequences for this action or movement in the organizational operations.Because R&D and M&A are so important to corporate performance,this study examines the validity of this hypothesis in Chinese acquiring enterprises.China is a developing market that has relied on both R&D and M&A to achieve traction with multinational corporations.This study uses data on M&A transactions and financial statements of 1,083 Chinese publicly traded companies listed on both the Shanghai Stock Exchange(SHSE)and the Shenzhen Stock Exchange(SZSE)between 2007 and 2019.Despite the various analyzes of R&D intensity of acquiring firms in China,previous literature has paid less attention to the lagged effect of R&D investment on the acquiring firm’s performance.To fill the research gap,this study evaluates the effects of M&A on acquirers in China.Second,the study assesses the impact of R&D intensity on the performance of acquiring enterprises.Finally,the study investigates the nonlinear relationship between R&D and firm performance,as well as the combined effect of M&A and R&D intensity on Chinese acquiring firms.By adopting the pooled ordinary least regression,four models were analyzed,and the main findings are as follows.First,a statistically significant positive impact existed between current M&A and current firm performance.Empirical results showed M&A increased acquirers’ firm performance in the same period.Second,in relation to future returns,current M&A decreased firm performance at the 10%significance level.On the other hand,current R&D intensity is negative and has significantly influenced current firm performance.However,there is a positive impact of current R&D intensity on future firm performance,albeit not statistically significant.Third,there is a nonlinear relationship between R&D intensity and firm performance.A simultaneous regression of current R&D intensity on current firm performance produced a U-shaped curve,but when the value of the firm performance is lagged,it produces an inverted U-shaped curve when current R&D intensity is regressed on it,demonstrating that R&D intensity on firm performance is inherently nonlinear.Finally,the current interaction variable(MA*RDI)negatively impacted the current firm’s performance but positively drives future firms’ performance,albeit not statistically significant.Hence,there is weak support for these results.On the other hand,MA*RDI enhanced future firm performance in the sense that R&D activities are processes and need time to actualize their full benefit on the firms’performance.Overall,the results show that a company’s R&D investment does not produce quick results.In reality,the lag impact suggests that there is a period of time before the consequences become obvious.As a result,increasing R&D in the current period improves future company performance.In conclusion,M&A creates value for Chinese acquirers.In terms of the nonlinear relationship between R&D intensity and firm performance,a simultaneous regression of current R&D intensity on current firm performance produced a U-shaped curve.On the other hand,regressing R&D intensity on lagged values of firm performance displayed an inverted U-shaped curve.Both approaches demonstrate that the relationship between R&D intensity and firm performance is inherently nonlinear.Acquiring enterprises in China should increase both their M&A and R&D intensity at the same time,as both will improve future firm performance in a certain threshold.