Effect of Cross Border Acquisitions on R&D Investments: An Emerging Market Perspective

Emerging economy firms use cross-border acquisitions for building new technological capabilities and augmenting their internal research and development (R&D) efforts, thus enabling them to strengthen their capabilities. Little is known whether the investment in cross-border acquisitions by emerging economy firms complements or substitutes for the internal R&D investment. Based on a panel data set of 296 Indian firms over a period of 13 years, we find empirical evidence that investments in cross border acquisitions complement internal R&D investments initially, but substitute internal R&D efforts at higher values of such investments. Both investments (R&D and cross-border acquisitions) complement, then substitute each other over a higher range for technology-intensive firms as compared to firms in the non-technology sectors. Further, investments in cross border acquisitions complement a firm’s internal R&D efforts in presence of high international product-market experience.