Cross-border M&A and innovation in the EU

This paper analyzes the characteristics of cross-border M&A in the EU and discusses their relationship with innovation performance. The average EU target firm that is acquired in international M&A is larger and more innovative than the average domestic target firm. Postacquisition, there is a decline in innovation output (measured by patent applications) generated by inventors in the country of the target firm. However, the average cross-border M&A is not necessarily associated with larger innovation reduction in the country of the target firm than a domestic transaction. Innovation in the country of the acquirer tends to increase when M&A provide market access. Theory and empirical evidence indicate substantial heterogeneity across firms and industry characteristics. I discuss implications for FDI screening, merger policy and industrial policy.