Discussion Paper 2306, "Acquisitions, Inventors’ Turnover, and Innovation: Evidence from the Pharmaceutical Industry" by Carmine Ornaghi and Lorenzo Cassi
There is robust evidence that M&As in the pharmaceutical sector have a negative impact on firms' patent output. In this paper we use data from the European Patent Office to investigate whether this decrease in patenting observed at firm level is associated with a halt in inventors’ activity - i.e. human capital loss due to inventors’ exit- or rather a migration of inventors of target firms to other research labs - i.e. human capital reallocation due to inventors’ departure. We estimate that acquisitions are associated with an increase in exit rates of targets’ inventors between 6 and 15 percentage points and of their departure rates ranging from 12 to18 percentage points. We find similar results are obtained for large and small deals and that top inventors of targets are also more likely to exit or to leave when an acquisition takes place. Our results show that, for each inventor that exits, 3.5 patents are foregone: a loss of 35 percent of the expected output these scientists could have produced over their careers. Inventors who relocate to a different lab also generate 2 fewer patents compared to similar control scientists, representing a 30 percent decrease in their productivity. Our finding suggests that concentrations are associated with a substantial loss in both worker and consumer welfare.
Keywords: M&As; inventors; innovation; patents; human capital loss; exit rates; separation rates; worker welfare.