Intellectual Property Rights (IPR) and Its Effect on the Flow of Cross-Border Mergers and Acquisitions (M&As)

Abstract

Extant research finds effective intellectual property rights (IPR) protection encourages firms to initiate mergers and acquisitions (M&A) deals. IPR strengthening positively affects firms’ research and development activities and thus their innovative ability. Consequently, acquirer firms can improve their innovation quotient by pursuing target firms in regions undertaking IPR protection and enforcement measures. The present study examines the impact of IPR protection on 20,363 inbound M&A deals engaged in 42 countries between the years 2014 to 2019. Differing from the use of conventionally employed, Ginarte and Park index available in a five-yearly interval, which evaluates only Patents, this paper proxies IPR strengthening through a more comprehensive annual intellectual property (IP) index (covering other intellectual assets like copyrights, trademarks, etc. besides patents) constructed by Global Innovation Policy Center, U.S. Chamber of Commerce. Estimates from panel regression, including country and year-fixed effects, indicate that reforms that improve IP protection in a target country are positively and, to a more considerable extent, significantly associated with an increase in inbound cross-border M&As. In addition, the impact is weakly significant when target firms belong to emerging countries. This study sheds light on whether IPR protection influences corporate decision-making. The results suggest that acquirers look forward to regions undertaking efforts to improve their IP ecosystem, either to protect their intellectual capital transmitted through technology transfer or to acquire targets high on innovative quotient.