Health Care Management Papers

Document Type

Journal Article

Date of this Version

2007

Publication Source

Managerial and Decision Economics

Volume

28

Issue

4-5

Start Page

307

Last Page

328

DOI

10.1002/mde.1343

Abstract

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.

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Date Posted: 27 November 2017

This document has been peer reviewed.