Mergers and innovation in big pharma

The aims of this paper are to study the effects of mergers on the R&D activity of consolidated firms and to explore the relationship between ex-ante relatedness of merging parties and their ex-post performances. The analysis is conducted using data of the pharmaceutical industry for the period 1988–2004. The empirical results suggest that merged companies have on average, worse performances than the group of non-merging firms. This result is confirmed when I account for the endogeneous formation of mergers by selecting a control group first using the propensity score method and then taking into account the technological relatedness of the firms. Finally, I find that higher levels of technological relatedness are not associated with better R&D outcome