Impacts of Peers’ Mergers and Acquisitions on Firm Innovation

This article aims to investigate how firms react to their industry peers’ adoption of mergers and acquisitions (M&A) under the condition of resource constraints. Due to the complexity and uncertainty of M&A, firms have great difficulty in imitating their peers’ M&A strategies and thereby remaining competitive with these other companies. Using a dataset of publicly listed firms in China from 2011 to 2015, our empirical study provides strong evidence that peer firms’ M&A have a significantly positive effect on corporate research and development (R&D) decisions, which is measured as R&D intensity. Additionally, we find that peer firms that attract more analyst coverage have a greater impact on the focal firm's R&D intensity. Furthermore, we reveal that the influence of peers is more prominent in highly competitive markets. Our findings are robustly supported by alternative sampling, proxies, and estimation techniques. By shedding new light on competitive dynamics and signaling theory, this study advances our understanding of what determines innovation decisions and contributes to our knowledge of the behavioral consequences of M&A.