Acquisition Market Thickness and R&D Investment Incentives: Evidence from National Security Restrictions

Speaker: Rosemarie Ziedonis

Professor - BU

Conference  Jouy-en-Josas / room meeting T025

Abstract 

This study investigates whether U.S. national security restrictions, which reduce acquisition market “thickness” in certain sectors but not others, alter the upstream R&D investments of potential targets. The analysis leverages a shift in U.S. national security policies through the Foreign Investment and National Security Act of 2007 (FINSA). We find a significant and deleterious effect of FINSA on the R&D intensity of potential targets, particularly in sectors with a higher reliance on foreign acquirers pre-FINSA. The results are robust to multiple acquisition-likelihood cutoffs and not explained by the late-2000s finance crisis. The study provides new evidence that fluidity in the market to acquire technology companies is consequential for upstream R&D investment incentives and reveals a possible unintended link between national security policies and innovative activity.