Preemptive Power, International Patenting and the Share of Equity sought in Cross-Border Acquisitions

Drawing on signaling theory, we investigate the features of a target firm’s patent portfolio as a signal to foreign acquirers, reducing information asymmetry and affecting the level of equity sought in cross-border acquisitions (CBAs). Based on a panel of 503 CBAs made between 1995 and 2010, with both sellers and acquirers in knowledge-intensive industries, we found that the preemptive power of the target’s patent portfolio positively influences the share of equity sought, but that the effect diminishes when the target’s profitability is high. The target’s share of patents filed under the Patent Cooperation Treaty has a positive impact and the weakness of its home country patent system accentuates this effect