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Insights Hometown advantage? Berkshire Hathaway buys CEO Warren Buffett's struggling hometown newspaper. Amazon acquires Whole Foods, which is headquartered in the state where CEO Jeff Bezos grew up. New School of Management research shows these aren't coincidences. Published in the Journal of Financial and Quantitative Analysis, the study examined 5,505 mergers and acquisitions from 1992 to 2014 and used Social Security data to determine where each executive grew up. Companies are 2.5 times more likely to acquire firms headquartered in their CEO's home state than similar firms, the study found. The effect was even stronger when CEOs lived in the state longer, went to college there or hold a board seat there. "On one hand, CEOs can exploit their local knowledge to make good deals," says study author Feng ( Jack) Jiang, associate professor of finance. "But they may also look home for personal reasons, like increased status or access to government officials, or to li up a distressed community using corporate resources." The researchers divided the data between public and private deals. Public acquisitions tend to be much larger and withstand intense scrutiny from investors, media and regulators. By contrast, small private deals are more likely to face weaker corporate governance—and be driven by a CEO's ulterior motives. They found public home-state deals outperformed similar deals by 2%, representing about $100 million more in average shareholder value. Conversely, private hometown deals underperformed by 1.5%, or about $22 million in lost share- holder value. "Corporate monitors should be leery of small, private hometown deals, but also recognize that a hometown advantage could benefit a company—if it has strong corp- orate governance," Jiang says. Jiang's co-authors were Yiming Qian, professor and Toscano Family Chair in Finance, University of Connecticut, and Scott E. Yonker, associate professor and Lynn A. Calpeter Sesquicentennial Faculty Fellow in Finance, Cornell University. Jiang Businesses that focus on innova- tion are more likely to be acquired—and command a higher price when they are— according to new School of Management research. Published in the Journal of Banking and Finance, the study found that firms with larger innovation output and more research and development (R&D) invest- ment are more likely to be acquired, receive unsolicited bids and receive multiple bids from companies seek- ing innovation through acquisition. "When Google ac- quired Motorola in 2011, the $12.5 billion buyout was 73% higher than its market value," says study co-author Kee Chung, the Louis M. Jacobs Professor of Financial Planning and Control. "Motorola's patents drove up the buyout price, because they allowed Google to protect the Android operating system and enhance its compet- itive position in the mobile marketplace." The researchers analyzed more than 30 years of data on R&D and patents to calculate a firm's innovation inputs and outputs, takeover premiums and the likeli- hood to receive unsolicited bids and multi- ple bids. They say that while previous research has explored the motives for and results of corporate takeovers, their study reveals innovation as a new factor. "Through our examination of decades of data, it's clear that innovation is a motive for corporate takeovers," says Jennifer Wu, clinical assistant professor of finance. "Innovative firms are more likely to be acquired and receive greater takeover premi- ums in the market for corporate control." While the greater premiums are good for the companies being bought out, the study revealed that for the acquiring firm, the higher price is worth paying. "These types of mergers are beneficial on both sides," says Wu. "The acquired company gets a bigger payday because of their cache of patents, but the newly merged company sees improved performance thanks to the influx of innovation." Innovative companies are more likely to be acquired Chung Wu 22 Buffalo Business Spring 2020