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Patent Trolls and the Market for Acquisitions

Published online by Cambridge University Press:  14 February 2023

Arash Dayani Open the ORCID record for Arash Dayani [Opens in a new window]
Arash Dayani*
Affiliation:
Clemson University Wilbur O. and Ann Powers College of Business
*
adayani@clemson.edu
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Abstract

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I study the effect of patent-infringement claims by patent trolls on acquisitions of small firms. Exploiting staggered adoption of state anti-patent troll laws, I find that the laws have two effects. First, the number of acquisitions of small firms declines after these laws are adopted. Second, the anti-troll laws increase the acquisition price for acquirers. The market reflects the increased cost of acquisition as measured by lower acquisition announcement returns. Large firms increase R&D after the adoption of state laws, replacing external innovation. Using a sample of acquisitions that are plausibly unaffected by the laws, I disentangle alternative explanations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 7 , November 2023 , pp. 2928 - 2958
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article was written while I was a PhD student at the University of Oregon. I am especially grateful to John Chalmers, Brandon Julio, Steve McKeon, and Jeremy Piger. I thank an anonymous referee and Paul Malatesta (the editor) for the great suggestions to improve the article. I also appreciate the helpful comments from seminar participants at Binghamton University, Clemson University, Oregon State University, San Diego State University, University of Oregon, Virginia Tech, Analysis Group, Cornerstone Research, Financial Management Association, and Eastern Finance Association. Supplementary results can be found in the Supplementary Material. All errors remain the sole responsibility of the author.

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