RESEARCH

We analyze the acquisitions of innovative standalone firms by large corporations organized into Business Groups (BGs), at the world level during the period 2007 to 2018. Consistent with the literature, we observe a higher probability of acquisition for firms that exhibit an ex-ante upward trend in innovation performance (measured in terms of patents or citations), relative to non-acquired firms. We find however systematic evidence of a post-acquisition decline in the innovation activity of acquired firms, primarily among firms with a patent portfolio similar to that of the acquiring BG. In contrast, acquired firms ex-ante innovating in a technological space different from that of the acquiring BG maintain their positive innovation trend after acquisition. The results are confirmed by considering acquisitions within the same industry or in highly concentrated industries. The evidence supports the hypothesis that large incumbent firms, across countries and industries, engage in defensive acquisitions to mitigate competitive threats. In this way they reduce the diffusion of knowledge, thereby preserving their market dominance. A number of robustness checks are performed to validate these results. The findings are also consistent with evidence gathered from a policy shock that exogenously affected the cost of acquisition for incumbent firms.

A wide class of literature shows the importance of branding and trust in final goods consumption, however, the role of trademarks in firm-to-firm relationships has received less attention. This paper focuses on filling this gap by investigating the impact of trademark ownership on the production networks of manufacturing firms. Using a comprehensive firm-to-firm transaction-level dataset in Turkey, we find that companies that apply for and receive trademarks make significant inroads in their position within supply chains. These firms experience, on average, a 13.7% increase in network centrality compared to those whose trademark applications are declined. The effects of branding are not limited to the network; we also document an 11.8% increase in productivity and a 23.9% increase in size within firm, four years after a granted trademark. This evidence suggests that trademarks enhance firms' visibility and credibility, attracting more business partners and expanding market reach. Furthermore, these findings imply that trademarks play a critical role in strengthening domestic production networks and fostering firms' growth.

Foreign direct investment (FDI) liberalization promotes the entrance of multinational firms relying on advanced technologies. This paper studies the effects of FDI liberalization on domestic downstream firms’ technology upgrading through two main mechanisms. Domestic final good producers might benefit from horizontal and vertical FDI technological spillovers. These effects can be unequal across domestic firms depending on their productivity level and on contract enforcement costs. We investigate the effects of FDI reform in India at the beginning of the 1990s on downstream manufacturing firms’ decision to invest in R&D. Relying on a difference-in-differences estimation, we compare firms producing in industries where FDI has been liberalized against those firms producing in non-FDI liberalized industries. Our findings suggest that Indian firms benefited from FDI liberalization to improve their technical-know. These results are concentrated on the most productive firms that upgrade their technology through both horizontal and vertical spillovers. Finally, firms producing in Indian states with weaker contract enforcement (more-congested courts) seem to benefit less from FDI liberalization.

This paper studies whether and how firms’ productivity gains from input trade liberalization are amplified by FDI openness using Indian firm-level data, Prowess, for the period (1989-1997). The empirical strategy relies on an original Difference-in-Differences methodology with variable treatment intensity exploiting exogenous changes in 3-digit industry-level FDI policy in 1991. Findings strongly suggest that most of the productivity gains reaped from input trade liberalization are channeled through FDI openness, and consequently the intensity of exposure to foreign firms. If FDI is completely liberalized, a 10-percentage point decrease in input tariffs increases TFP by 8.6% as opposed to 2.7% if the firm is not exposed to any FDI. Findings also suggest a technical know-how spillover that is stronger for capital-intensive and large firms.