Acquisition for Innovations? M&A Intensity and Intra-Firm R&D Reallocations

We investigate how M&A activities are used to allocate R&D resources within firm boundaries. We find that Chinese listed firms exhibit strong intra-firm R&D reallocation behaviors following M&A activities from 2007 to 2017. Specifically, they shift innovation activities to subsidiary firms. The intra-firm R&D reallocation concentrates on cash-paid, restructuring, and related-party deals. In addition, the intra-firm R&D reallocation behaviors are visible in firms with low financial constraints, high product market competition, and low productivity. The intra-firm R&D reallocation is value-enhancing for listed firms in general. Our findings highlight the intra-firm R&D reallocation as an effective innovation strategy.