Growth options and acquisition likelihood in high tech

摘要

With high tech firms now representing the majority of acquisitions among all pubic, non-regulated firms, we attempt to determine how a tech firm's growth options influence its likelihood of being acquired. In particular, we develop a new growth options proxy called Gamma (Γ) to represent the return relative to investment in research and development. We find that Γ is inversely related to the likelihood of being acquired. Robustness tests show that this relationship holds regardless of the subperiod assessed, the size category assessed, whether tech firms are engaged in friendly or hostile acquisitions, the method used to identify tech firms, and whether the R&D definition includes capital expenditures. The relationship is even more pronounced when tech targets have a relatively low valuation (based on the market-book ratio). Furthermore, we find that tech firms with a high Γ are less likely to acquire targets. In general, tech firms with a high Γ appear to prefer organic growth rather than expansion by combinations with other tech firms.