Do Foreign Mergers and Acquisitions Increase Acquired Firms’ Innovation? Evidence from Chinese Manufacturing Firms

Abstract

By merging China's manufacturing enterprise, patent and customs databases, we construct a sample of 27,130 firms from 2002–2007. Using Poisson fixed-effects regressions to control for firm and year heterogeneities and a host of control variables, we find that acquired firms of foreign mergers and acquisitions (FMA) apply for significantly more patents than their domestic counterparts in invention, utility model and design patents. Furthermore, FMA increases innovation through expanding firm size, exports and human capital formation. Wholly foreign-owned firms are more innovative than partially foreign-owned firms, and acquired firms in labour-intensive industries are more innovative than those in capital-intensive industries.