Does Heightened M&A Activity Benefit Innovation and Consumers? Evidence from the Pharmaceuticals Industry

Thesis advisor: Michael D. GrubbThe aim of this paper is two-fold: 1) to explore the ex-ante relatedness of merging pharmaceutical companies and 2) to study the ex-post effects of mergers on R&D innovation and drug prices, where innovation is quantified by the number of patents granted. Annual firm-specific financial and patent data in this study were obtained for years between 1987 and 2014, while quarterly drug price data spanned from 2006 Q1 to 2015 Q1. The empirical results suggest that on average, heightened M&A activity leads to diminished R&D output and higher drug prices. These results are confirmed using time series models and by comparing post-merger performance of merged firms to that of their respective control groups through a propensity score matching method.Thesis (BS) — Boston College, 2015.Submitted to: Boston College. Carroll School of Management.Discipline: Departmental Honors.Discipline: Economics