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Managerial and Decision Economics
We examine the determinants and eﬀects of M&A activity in the pharmaceutical/ biotechnology industry using SDC data on 383 ﬁrms from 1988 to 2001. For large ﬁrms, mergers are a response to expected excess capacity due to patent expirations and gaps in a ﬁrm’s product pipeline. For small ﬁrms, mergers are primarily an exit strategy in response to ﬁnancial trouble (low Tobin’s q; few marketed products, low cash–sales ratios). In estimating eﬀects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large ﬁrms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating proﬁt, compared with similar ﬁrms that did not merge. Thus mergers may be a response to trouble, but they are not a solution.
Danzon, P. M., Epstein, A., & Nicholson, S. (2007). Mergers and Acquisitions in the Pharmaceutical and Biotech Industries. Managerial and Decision Economics, 28 (4-5), 307-328. http://dx.doi.org/10.1002/mde.1343
Date Posted: 27 November 2017
This document has been peer reviewed.