Mission Statements

and their influence on acquisition partner selection

Sander Adams
Maastricht University Faculty of Economics and Business Katrin Hussinger May 11th, 2009

Management Summary

The aim of this research was to find out if there is a relationship between mission statement content and acquisition target selection. By comparing the level of technology within the target firms, measured by several parameters related to the number and quality of patents within a firm, and relating these to the acquiring firms having or not having the technology component in their mission statements, a possible relationship between mission statement and acquisition partner selection could be discovered.

Three variables measuring the quantity of patents within a target firm found to have no significant relationship with target selection by the acquiring firm having a technology component in their mission statement. The fourth and final variable, the patent citation rate, is a measurement of the quality of the patents within a target firm. This variable found to have a significant relationship with target selection by the acquiring firm having a technology component in their mission statement. From the literature, the patent citation rate could be regarded as the variable that was more focused on patent quality than on patent quantity, which was the main focus of the other three variables used in this research. For acquiring firms with a technology component in their mission statement, patent quality within a acquisition target is of higher importance than patent quantity, and these firms tend to focus on the acquisition targets having a high patent quality, as measured by the patent citation rate.

Foreword
Thank you for reading my master thesis. With this research, I will have completed my studies in Maastricht. Studying in Maastricht did not only develop my intellectual and professional skills but also developed my personal skills. I can say I made valuable friendships and learned valuable lessons during my years in Maastricht, friends and lessons I will carry on with me for the rest of my life.

I would like to thank: Harrie, Marianne and Danielle Adams, my grandparents, Joyce Vonken, Erwin Bastianen, Floris Schreuder, Roel van de Laar, Sonny Tan, Thijs Engelen, Maarten Scholts, Martijn van Cauteren, Mike Bakker, Jorijn Zijlstra, Anna Faber, Wim Swaan, Nicolle van den Elst and Katrin Hussinger for their support, lessons and friendship during the years.

Sander Adams

Table of Contents

1. Introduction 2. Literature Review 1. Mergers & Acquisitions Literature 2. Corporate Identity Literature 3. Mission Statement Literature 4. Patent Literature 5. Patent Citations Literature 3. Empirical Analysis 1. Introduction 2. Variables 3. Hypotheses 4. Data Source 5. Methodology 4. Research Results 5. Conclusion 6. Limitations 7. References

05 08 08 10 14 19 22 23 23 23 25 26 27 28 38 39 41

1. Introduction Although there is substantial literature on the motives for and consequences of mergers and acquisitions, the influence of the acquiring firms mission statement on acquisition target selection is still an area where additional research can be performed. When examining current literature on mission statements, an emphasis is put on finding a relationship between mission statement components and financial performance (Pearce & David, 1987; Bart, 1998; Bart, Bontis & Taggar, 2001). However, none of these were able to find a positive relationship between the inclusion of certain mission statement components and financial performance. When examining current literature on mergers & acquisitions, one notices that there is substantial literature on target selection, however this has never been linked to the mission statement. The influence of the acquiring firms mission statement on acquisition target selection has not received much academic attention, yet.

The aim of this research is to provide a better understanding of the influence of the acquiring firms mission statement, which is a reflection of the corporate identity and thus the corporate actions (Melewar, Karaosmanoglu & Paterson, 2005), on the partner selection in an acquisition process. Because some firms have a technology component included in their mission statement, one could argue that these firms will be more focussed on technology and thus put more emphasis on the level of technology within a firm selected as a possible target for acquisition. This research tries to investigate whether firms that have a technology component included in their mission statement differ from firms that do not have this component included in their mission statement with respect to the level of technology present in the selected target firm. By comparing the level of technology within the target firms, measured by several parameters related to the number and quality of patents within a firm, and relating these to the acquiring firms having or not having the technology component in their mission statements, a possible relationship between mission statement and acquisition partner selection could be discovered.

acquisition targets

T=1

Md(t=1) Md(t=1) > Md(t=0) Md(t=0)

T=0

Figure 1: Research model

The research model which will be used can be seen in Figure 1. In essence, the median values for four measurements for the level of technology within a target firm of two groups within the sample (acquiring firms with a technology component in their mission statement and acquiring firms without a technology component in their mission statement) are compared. The four measurements for the level of technology within a target firm are: 1. Number of patents: An absolute number indicating how many patents the firm possesses in its portfolio in the year prior to the acquisition 2. Patent stock: The number of patents in year (t-1) multiplied by one minus the constant knowledge depreciation rate of 15 percent (Hall, 1990), plus the number of patent applications by the firm in year (t). 3. Relative patent stock: The patent stock divided by the total assets of the firm. 4. Patent citation rate: The number of citations the firms patents received up until five years after the patent publication date, corrected for the total number of patent applications in that period. In this research, it is expected that the median value for each of the four parameters will be significantly higher for the acquiring firms that have a technology component in their mission statement. The reason for choosing the median as a measurement instead of the (more common) mean is because the sample is not normally distributed but is heavily skewed to the left. Therefore, statistical tests using the median are more appropriate (Pallant, 2007). The hypotheses used in this research to find this possible relationship are:

Hypothesis 1a: Firms that have a technology component in their mission statement acquire firms with a higher number of patents than firms that do not have a technology component in their mission statement. Hypothesis 1b: Firms that have a technology component in their mission statement acquire firms with a higher patent stock than firms that do not have a technology component in their mission statement. Hypothesis 1c: Firms that have a technology component in their mission statement acquire firms with a higher relative patent stock than firms that do not have a technology component in their mission statement. Hypothesis 1d: Firms that have a technology component in their mission statement acquire firms with a higher patent citation rate than firms that do not have a technology component in their mission statement.

These hypotheses will be discussed in detail in the data research section. First, the concepts and theories on which this research builds on will be discussed in order to provide a solid understanding of the fundamentals of this research. This will include literature on mergers & acquisitions, corporate identity, mission statements, patents and patent citations. Next, the research outline will be provided. This includes the variables used throughout this research, the hypotheses that will be tested, the data source and research methodology. After this, the hypotheses will be tested and the results will be provided. This research uses the merger and acquisition database ZEPHYR from Bureau van Dijk Electronic Publishing which was then linked to financial data from the Amadeus database by Bureau van Dijk Electronic Publishing and is then expanded with data on the target firms number of patent applications from the European Patent Office (EPO). After discussing the results of the hypothesis testing, the limitations of this research will be dealt with.

Finally, a conclusion will be provided. From the literature, the patent citation rate could be regarded as the variable that was more focused on patent quality than on patent quantity, which was the main focus of the other three variables used in this research. From this research it can be concluded, for acquiring firms with a technology component in their mission

statement, patent quality within a acquisition target is of higher importance than patent quantity, and these firms tend to focus on the acquisition targets having a high patent quality, as measured by the patent citation rate.

2. Literature Review During this section of the research, the relevant concepts and theories will be discussed in order to provide a solid understanding of the fundamentals of this research. First, general literature on mergers and acquisitions will be discussed. Next, the concept of corporate identity will be examined in order to come to the concept of the mission statement. Finally, relevant information on patents and the patent application process will be provided.

2.1 Mergers & Acquisitions Literature Innovation is an important determinant for competitiveness, survival and success. When firms are lagging behind on R&D, or are not capable of delivering the necessary R&D to remain competitive, firms seek for external sources to allow them to remain competitive in their industry. Especially in the high-technology industry, a firm must be able to keep up with the developments in the industry in order to remain competitive. In these industries, due to their highly uncertain environment, firms face difficulties in sustaining a competitive advantage and achieving long-term performance. While a patent can provide protection to a firms innovation, the sustainability of this innovation in such a rapidly changing environment can be problematic as many innovations are succeeded by other innovations, which in turn make the initial innovation obsolete and thus patent becomes useless (Kennedy, Payne & Whitehead, 2002). As a result, firms in these high-technology industries tend to focus on either increasing their own R&D activities or on gaining access to other firms technologies by acquiring the specific technology or acquiring the entire firm. According to Kennedy, Payne & Whitehead (2002), fostering innovation by increasing R&D activities implies building on previous innovations and core streams of technologies. They argue that in such a rapidly changing environment, the somewhat incremental existing R&D processes within a firm might not always be suitable for such an environment, as breaking with certain technologies might be required for innovative success. In essence, the familiarity with certain core technologies and the resulting narrow scope of innovation strategies can result into
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evolutionary innovative behaviour where revolutionary innovative behaviour would be necessary for innovative success (Christensen, 2000). As a result, firms often seek to acquire certain technologies or innovations from other firms in order to keep up with the technological state in the industry. However, the acquiring firms often pay such a high premium for the assets and technologies of the target firm that the acquiring firms rarely make a profit on the acquisition (Sirower, 1997). Also, the acquiring firm has to accept the risk that the acquired assets and technologies do not always guarantee successful integration with the existing assets and technologies within the firm, that they do not always lead to newly developed products or services, and they do not always lead to increased competitiveness (Kennedy, Payne & Whitehead, 2002). This choice between increasing R&D activities or gain access to other firms technologies is often referred to as the make-or-buy decision.

Continuing on the make-or-buy decision, the resource-based view (RBV) argues against the traditional economic assumptions that firm resources are homogeneous and perfectly mobile. The resource-based view (RBV) argues that firm resources are heterogeneous and imperfectly transferrable between firms (Watjatrakul, 2005). Here, resources can be defined as all assets, capabilities, organization processes, firm attributes, information, knowledge, etc. controlled by the firm that enables the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Barney, 1991). When firms can sustain a competitive advantage by effectively using their resources (which can then be called strategic resources), these firms enable themselves to exploit market opportunities and avoid threats from competitors strategic resources. Competitive advantage can be created when these resources are valuable, rare, imperfectly imitable and non-substitutable. The strategic resources that create a sustainable competitive advantage are often protected from imitation by patents (Hall, 1992), scale (Collis & Montgomery, 1995) and resource-specific assets such as tacitness, complexity and specificity (Reed & DeFillippi, 1990). As a result, a competitive advantage can become a sustainable competitive advantage. Strategic resources can be critical for the firms competiveness and firms therefore retain these strategic resources in order to sustain their competitive advantage (Barney, 1991). As mentioned before, these strategic resources can be protected by patents and will most likely take a long period of time to develop internally. Therefore, acquiring another firm and absorbing the technologies and innovations found within this firm can result in a suitable method of entering new markets, markets where effective barriers to entry exist and which would be difficult to enter using only internal R&D.
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In the end, the acquisition of a target firm might actually be less costly than internally developing the required technologies, which can absorb a lot of resources from the firm, resources that could have been allocated otherwise (Balakrishnan & Shelton, 1988).

After discussing the motives for acquisition in the high-technology industry and the related make-or-buy decision, the following section of this research will focus on corporate identity literature. The corporate identity literature examines where and how the firms mission statement can be seen throughout the firm and how the mission statement possibly influences firm decision making.

2.2 Corporate Identity Literature Corporate identity can be defined as the way in which an organization reveals its philosophy and strategy through communication, behaviour, and symbolism (Leuthesser & Kohli, 1997). The concept of corporate identity basically encompasses having a core business philosophy which can be traced back into the mission- and vision statements, hence the discussion of the concept of corporate identity in this research. A mission statement is an integral part of the firms corporate identity and can be regarded as necessary in the formation of a firms identity, purpose and direction (Leuthesser & Kohli, 1997). Because the mission statement is an integral and interdependent part of corporate identity, this research will define the concept of corporate identity and discuss the components of corporate identity to provide a clear understanding of the concept and all of its relationships with the mission statement. The concept of corporate identity can be explained by the Corporate Identity Taxonomy which divides the concept into several core components (Melewar, 2003), as can be seen from the figure below.

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Figure 2: Corporate identity components (Melewar, Karaosmanoglu & Paterson, 2005)

To begin with, there is corporate communication, which can be described as in how the firm communicates with its stakeholders. This can be controlled corporate communication or uncontrolled corporate communication. The first is the intentional communication to stakeholders with the intent to improve stakeholder relationships. This can be split up into three types of controlled communication: management, marketing and organizational communication. Management communication can best be explained using the definition by Olins (1989), stating that management communication will communicate the vision and mission of the company in order to establish a favourable image and ultimately a good reputation amongst its internal and external stakeholders. Clearly, the communication process in management communication has a distinct relation with the corporate mission statement. Next, marketing communication is the promotional communication focussed on
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positively stimulating the image for products and services which, in the end, enhances the firms image (van Riel, 1995). Finally, organizational communication can best be described as the communication between the firm and all the interdependent stakeholders (van Riel, 1995). Out of the three types of controlled communication, management communication is regarded as the most influential one because it communicates the organizational mission, vision and goals directly to the relevant stakeholders (Melewar & Woodridge, 2001). Coming back to the other element of corporate communication, uncontrolled corporate communication is the unintentional communication to stakeholders which has an impact on the perception of the stakeholders on the firm (Melewar, Karaosmanoglu & Paterson, 2005). Corporate design, otherwise known as visual identity, consists of all the visual attributes designed by the firm to differentiate itself and provide a recognition point to stakeholders for quality and importance (Melewar, Karaosmanoglu & Paterson, 2005). Corporate design consists of five main elements: name, slogan, symbol, colour and typography (Melewar & Saunders, 2000). Examples of well-known corporate designs are the Coca-Cola logo, the Nike swoosh and its slogan Just do it and Apples logo, the white apple. Next, corporate culture refers to the firms core values, behaviour and beliefs (Albert & Whetten, 1985) and is closely interrelated with corporate identity (Hatch & Schultz, 1997). Although there is some disagreement on what encompasses corporate culture, many authors (Abratt, 1989; Balmer, 1998) agree that corporate culture consists of eight key elements. First, the corporate philosophy refers to the firms corporate values and assumptions and include the moral principles and beliefs that shape the firms culture (Gray & Balmer, 1997). Corporate vision and mission refers to the raison detre of a firm and is regarded as the most important element of corporate identity (Abratt, 1989; Ind, 1992). The corporate mission also provides guidance for strategy and is a way to differentiate the firm from other organizations. A clear distinction between vision and mission has to be made. Although the two are highly interdependent, vision is regarded as a way to communicate corporate strategy and managing corporate culture (Lipton, 1996) thus specifying the desired values and behaviour within the organization for achieving the organizational goals (Sheaffer, Landau & Drori, 2008). The mission statement is then a tool in order to implement the corporate vision (Sheaffer, Landau & Drori, 2008; Bart, 1997). A more in-depth discussion on the concept of the mission statement will be provided in the next section of this research. Continuing on corporate culture, corporate principles are part of a firms formation of corporate actions such as values, vision and mission and the corporate guidelines explain the corporate principles throughout the organization (Melewar, Karaosmanoglu & Paterson, 2005). The history of a firm, the corporate history, shapes the
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corporate identity as the organizational culture is an evolution of corporate history (Ind, 1992). Also influencing corporate history and thus corporate identity are the founders of a firm, driving and shaping the organizational culture (van Riel & Balmer, 1997). Related to the founders, the country of origin and the related national characteristics have an effect on corporate culture (Balmer, 1998). Last, the influence of subcultures within an organization leading to the acceptance of the perspective that an organization is a mixture of subcultures (Melewar, 2003) should be mentioned. Leaving corporate culture behind and continuing with the core components of corporate identity, another aspect of the corporate identity and closely related to corporate culture is the corporate behaviour, which can best be described as the corporate actions, both planned and spontaneous, within an organization. Next, corporate structure is shaped by organizational structure and branding structure. Organizational structure refers to the level of centralization or decentralization in location and products (Ind, 1992) and branding structure refers to the branding strategy of a firm in order to differentiate itself from competitors (Balmer, 2001). There are three branding structures identified by Olins (1989) namely (1) the monolithic structure where there is a consistent name and visual style, (2) the endorsed structure where corporate identity is associated with the name of subsidiaries and (3) the branded structure with differentiation through different brand names. Industry identity refers to the industrys competiveness, size and rates of change, all influencing the corporate identity. Hence, the industry identity can have a significant impact on the corporate strategy. Finally, corporate strategy covers all of the firms objectives and strategies for competing. A corporate strategy is a reflection of the firms corporate identity (Melewar, Karaosmanoglu & Paterson, 2005).

As becomes clear from the above, corporate communication and corporate culture are components of corporate identity in which the mission statement has an important role. In corporate communication, the mission statement is used to communicate the firms image and reputation to both internal and external stakeholders and therefore the content of the mission statement is vital for the success of this corporate communication. The influence of the mission statement on corporate culture can best be described as the influence of the way the firm defines itself and the reason for existence of the firm on the underlying corporate principles and guidelines, eventually resulting in an influence in the corporate actions (van Riel & Balmer, 1997).

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The corporate identity components as mentioned by Melewar, Karaosmanoglu & Paterson (2005) suggest a strong relationship between the mission statement and corporate identity. Therefore, mission statement content is expected to be found throughout the firm and is also expected to influence firm decision making. As a result, one could argue that when a firm mentions its basic technology or a clear focus on technology in its mission statement, the underlying corporate actions will be influenced and more attention to technology will be visible throughout the firm.

2.3 Mission Statement Literature The mission statement is a concept that so far has received relatively little academic attention. According to Bart (1997), mission statements have the ability to inspire and motivate organizational members to exceptional performance - that is, to influence behaviour, and to guide the resource allocation process in a manner that produces consistency and focus. In essence, a mission statement can provide a context for strategy (Thompson & Strickland, 1992). In reality, many mission statements are unreadable and uninspiring (Cochran & David, 1986) and contain unrealistic values that are not connected with the actual organizational behaviour (Bart & Hupfer, 2004). Fact is that there is not a lot of academic literature on mission statements and that most of the literature available focuses on mission statement components (Pierce & David, 1987; David, 1989; Bart, 1997, Bart, 1999; Sufi & Lyons, 2003, Sheaffer, Landau & Drori, 2008) instead of the alignment between the mission statement and the actual business environment. This research tries to combine the two by looking for a relationship between a mission statement component and acquisition target selection.

First, the concept of the mission statement should be described. Several definitions for a mission statement can be provided as many authors have tried to define the concept. A general definition is provided by Falsey (1989) who states that a mission statement tells two things about a company: who it is and what it does. Of course, others have tried to create more elaborate definitions such as Klemm, Sanderson & Lufman (1991) who defines a mission statement as a statement of the long term purpose of the organization reflecting
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deeply held corporate views and Bart & Hupfer (2004) who define a mission statement as a formal written document intended to capture an organizations unique and enduring purpose, practices and core values, the mission statement is considered to be the cornerstone of every organization at the starting point of every strategic management initiative. Based on the above, a mission statement generally reflects on the identity of a company with respect to corporate values and beliefs and provides a reason for the firm to exist and compete. When leaving the definition of the mission statement behind and moving on to the actual content of the mission statement, there is a lot of disagreement among authors. One would argue that after defining what a mission statement is, the content of a mission statement would be straightforward and easy to agree upon. David (1989) discusses the content of mission statement and refers to McGinnis (1981), who states that a mission statement should define what the organization is and what the organization aspires to be, should be limited enough to exclude some ventures and broad enough to allow for creative growth, should distinguish a given organization from all others, should serve as a framework for evaluating both current and prospective activities, and should be stated in term sufficiently clear to be widely understood throughout the organization. Stone (1996) then suggested certain characteristics or qualities that mission statements should encompass to be effective. These characteristics are: articulate, relevant, up-to-date, motivating, unique, enduring and appropriate. Combining these two perspectives should provide a solid background for creating an effective mission statement as these perspectives provide clear boundaries and expectations to which a mission statement should comply. However, within the boundaries and expectations provided before, what are the components that can be identified to be used throughout an array of mission statements, in essence, what comprises a mission statement? Several authors have tried to define mission statement components. Campbell, Devine & Young (1990) classified mission statements into five elements: 1. Rationale for existence 2. Corporate values 3. Standards 4. Behaviour 5. Strategy According to the authors, a solid mission statement should include all these components. In a comparable line of reasoning, Klemm et al. (1991) identified four categories to classify mission statement components in order to see how firms classified their own mission
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statements and where these differ from other statements by the firm on goals and objectives. The four categories are: 1. The mission 2. Strategic objectives 3. Quantified planning 4. Business definition In a previous research, Pierce and David (1987) identified eight key components of mission statements, which was later adjusted to nine key components by David (1989). However, these components are not prescriptive as they do not state a requirement of that component within a mission statement, such as the five elements of Campbell, Devine & Young (1990) and the four categories of Klemm et al. (1991), but are merely descriptive in order to dissimilate mission statements into components that can be recognized and categorized for further research. These key components of mission statements are: 1. Customers Who are the firms customers? 2. Products or services What are the firms major products and services? 3. Location Where does the firm compete? 4. Technology What is the firms basic technology? 5. Concern for survival What is the firms commitment to economic objectives? 6. Philosophy What are the basic beliefs, values, aspirations and philosophical priorities of the firm? 7. Self-concept What are the firms major strengths and competitive advantages? 8. Concern for public image What are the firms public responsibilities and what image is desired? 9. Concern for employees What is the firms attitude towards employees? The nine key components as identified by David (1989) are generally accepted and used throughout academic literature on mission statements and will therefore be the starting point for identifying and categorizing mission statements in this research. The aim of this research is to find out if there is a relationship between mission statement content and acquisition target selection. Out of the nine components mentioned above, the technology (4) component will be used for this research and will be linked to patent information of the target firms within an acquisition

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Having discussed what a mission statement is and what a mission statement should consist of, the next logical step would be to see what the objective of a mission statement is. Based on literature that discussed the objectives of mission statements, Bartkus, Glassman & McAfee (2004) found that the four most cited objectives of mission statements are to (1) communicate the firms direction to stakeholders, (2) keep the firm on track by providing a control mechanism, (3) guide non-routine decision making and (4) motivate and inspire employees. However, they argue that these objectives can actually be the cause for certain business issues. While a mission statement communicates the firms direction and purpose to employees and other stakeholders, these people already know the direction and purpose of the firm, often in much more detail then is communicated through a mission statement (1). Also, the mission statement as a control mechanism to keep the firm on track may result in a narrow mindscape where flexibility and freedom of change is hindered. Because the business environment changes constantly and a firm should constantly try to adapt to the changing environment, a mission statement can seriously limit the ability to change and decrease a firms flexibility (2). Next, while a mission statement should guide non-routine decision making, it is most of the time very general and non-specific, making the mission statement a tool with no true applicable use in the field of management because of the fact that every situation in every level of the firm requires a different approach (3). Because of the fact that employees are facing a changing environment where downsizing is common and employee mobility is high, the relationship between the firm and the employee is changing. Employees are currently less involved with the firm as they were before and have little desire to take part in and be part of the big picture of the firm. Also, since there are already so many employee motivation strategies (TQM, MBO, incentive systems, empowerment techniques and quality of life initiatives) one could argue that the true effect of a mission statement enhancing employee motivation would be rather minimal (4). Concluding, although a mission statement has been attributed clear objectives, there are solid arguments that these objectives might actually have a negative effect on performance. However, as a general management tool to provide a purpose to the existence of the firm, the mission statement is still regarded as an effective management tool. An important issue to mention is the communication of the mission statement to the employee. A generally known fact is that the effect of a mission statement depends on the way it is communicated (Williams et al, 2005), but emphasis should also be put on the impact of the way it is received and interpreted. Only communicating the
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mission statement is not enough, the impact of the mission statement is determined by the receiver, not the transmitter (Beck, 1999) so attention has to be paid to the way the message is received and viewed upon. An effective mission statement should therefore focus on the content, context and communication.

Both David (1989) and Klemm et al. (1991) identified that controversy in trying to answer the question What is our business? is the main reason for firms not to have a mission statement. They also found that firms not having a mission statement feel that day-to-day business processes hinder strategic planning and that these firms possess a scepticism about the value of a mission statement. Ireland & Hitt (1992) also looked into the reasons for firms not to have a mission statement and came up with eight key issues: 1. The number and diversity of organizational stakeholders 2. The amount of work required to develop an effective mission statement 3. The tendency for some stakeholders to become comfortable with a firms current position 4. The belief that mission statements may reveal too much confidential information 5. The difficulty that can be encountered when key upper-level personnel spend too much time on operational rather than strategic issues 6. The requirement to think as a generalist, not as a specialist, when developing a mission statement 7. Some individuals desire for excessive amounts of organizational autonomy 8. The historical formality of strategic planning processes One point that has to be made here however, is the fact that while a lot of firms have a mission statement, these are sometimes not easy to find. One would argue that once a firm has a mission statement that it would try to communicate this mission statement to the public, and while some firms are highly successful in doing so, others are not. Experience from this research shows that many firms do not even have their mission statement on their corporate website and that the mission statement (if present) can be extremely difficult to find. When a firm handles its mission statement in such a manner, the effects of having a mission statement will diminish. On the other hand, in certain situations having a mission statement might be seen as inappropriate, as Campbell & Tawadey (1992) explain. They find that in situations where the corporate strategy or composition of the management team is uncertain or subject
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to change, or when there are significant differences between members of the management team, a firm might be better off without a mission statement in order to enhance flexibility in values and strategy.

This research relates mission statement content of the acquiring firm to the level of technology within the selected target firm, which is measured by several coefficients related to patens. Therefore, the following section will discuss patents and patent citations, in order to fully understand the underlying concepts of this research.

2.4 Patent Literature In order to measure the level of technology within a firm, this research uses the total number of patents within the firm and several coefficients calculated using the total number of patents. In the world of today, the protection of intellectual property is becoming increasingly important. Without the protection of intellectual property there would be little incentive to innovate because the innovator cannot experience superior profits and competition can immediately copy the innovation without incurring the R&D costs associated with the innovation. A patent can protect the innovators intellectual property so that the innovator can benefit from the intellectual property. The Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement clearly defines patents as any inventions, whether products or processes, in all field of technology, provided that they are new, involve an inventive step and are capable of industrial application but also states that inventions can be excluded from a patent when they can protect human, animal or plant life or health or to avoid serious prejudice to the environment. According to the TRIPS agreement, a patent grants the patent holder the exclusive right to: 1. (a) where the subject matter of a patent is a product, to prevent third parties not having the owners consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product. 1. (b) where the subject matter of a patent is a process, to prevent third parties not having the owners consent from the act of using the process, and from the acts of: using, offering for

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sale, selling, or importing for these purposes at least the product obtained directly by that process. 2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts. In short, a patent can best be described as a intellectual property right which grants the patent holder the exclusive right to exploit, sell or licence the patent. A patent is valid for a maximum of twenty years. According to Lipczynski & Wilson (2001), the length of a patent should allow the patent holder to earn back the related R&D costs and enjoy a reasonable profit. However, if the patent length is too short, the R&D costs may not be earned back and thus innovation is actually discouraged, and if the patent length is too long firms will earn abnormal profits and society surplus will be minimal. Therefore, the optimal length of a patent is exactly until the time where marginal cost equals marginal benefit (MC=MB). The breadth of a patent is difficult to describe because the effective breadth of a patent is near impossible to measure. The breadth of a patent should create a sufficiently large difference from an existing concept to stimulate innovation (Lipczynski & Wilson, 2001). Combing both the length and breadth of a patent, ODonoghue et al. (1998) define an effective patent life as the situation when a patent which either expires or is superseded by a newer innovation.

Although patents are recognized to stimulate innovation, Lipczynski & Wilson (2001) also recognize that there might be certain issues related to patents which might actually work against effective innovation. First, they argue that patents might only stimulate patentable innovation therefore forfeiting on other innovative efforts, which could actually have a greater economic benefit to the firm and/or the economy. Also, patents might stimulate so called patent races where there is a competition in innovation to become the first to patent and introduce an innovation and thus receive all the benefits. The losing firm may encounter difficulties to justify the incurred costs. Next, they argue that certain firms use a strategy where the use patents to create a monopoly and to protect themselves from new entrants in the industry. More competition would stimulate innovation, as might not always be the case in the current situation. Finally, each specific market requires a different perspective with respect to patents. In a monopoly, patents for the monopolist only create barriers to entry for new entrants, and in perfect competition patents would stimulate innovation because it prevents

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knowledge sharing with competitors. Therefore, it can be concluded that an effective patent system depends on the industry or market to function.

An important issue to emphasize is that applying for patents can be expensive for small and medium sized firms (SME). A patent application can be national (UK-IPO), European (EPO) and international (PCT) and it is important to consider the fact that patents are only granted for those countries where a patent application was made. Also, setting up a patent and application- and renewal fees will have a significant impact on the costs associated with a patent application (Lipczynski & Wilson, 2001). What is important for this research is the fact that, since small firms do not always apply for a patent, the number of patent applications and all related coefficients might be lower than the level of innovation within the firm. Because the sample in the research consists of firms of many sizes, this may have an effect on the results.

Another factor which should be mentioned here is the fact that not all innovations are patented. Advantages of patenting are legal protection for a given period of time and the ability to legally obtain a monopoly position on the market for the innovation. However, the disadvantages of patenting an innovation can outweigh the protection offered by patenting. First, as mentioned before, the costs of patenting can be significantly large. Also, a patent provides protection for a given period of time, but after this period of time the innovation will be publicly accessible and available for commercial use. By keeping the innovation a secret, firms might be able to extend the commercial life of the innovation.

The Coca Cola Company is a well-known example of this situation. Since the Coca Cola formula cannot be reverse engineered, keeping the formula a trade secret has been very lucrative for the Coca Cola Company. The Coca Cola Company is responsible for keeping the formula secret and has to prevent it from getting publicly known. As a consequence of Coca Colas choice to keep the formula for Coca Cola as a trade secret, there is absolutely no protection might the formula become public knowledge, which would enable competitors and new entrants to copy and use the Coca Cola formula for commercial use (Zvulony, 2005).

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Still, as proven by Coca Cola, choosing not to patent an innovation might actually be more beneficial.

2.5 Patent Citations Literature Patent citations are becoming more common every day as a measurement of the inventive performance of firms (Hagedoorn & Cloodt, 2003). While the total number of patents within a firm and the patent stock are more quantitative measurements, the patent citations are measurements of patent quality (Pavitt, 1988; Albert, 1991; Karki, 1997). With each patent application, it is required to cite earlier patents that are somewhat similar or related to the new innovation, better known as prior art. (TRIPS). According to Hall, Jaffe & Trajtenberg (2005), patent citations provide information on the linkages between innovations and innovators, and they can be used to effectively valuate patents. They argue that, when firms decide to invest in the development of a previously patented innovation, the patent citations are an indication of the economic value of the cited patent. However, according to Harhoff et al (2003), most patents have no value at all. This is because when a patent is not effectively used or cited in new patent applications, the underlying innovation seems useless and thus has no economic value. Because patent citations mainly occur over a long period of time, the patent citations also prove the long-term economic value of the cited patent. The patent citations can be regarded as an appropriate measure of patent quality and patent value. Closely related to the patent citations is the patent citation rate. The patent citation rate can be defined as the number of citations the patent received up until five years after the patent publication date. (Harhoff et al, 2003; Harhoff et al, 2005).

Concluding, the literature discussed in the paragraphs above mentioned how and where the mission statement can have an impact on the firm and on firm behaviour. Also, different perspectives of various authors on the components of a mission statement have been provided, as well as information on patents and patent citations. With this, a solid background for the empirical analysis has been provided to the reader. What this research has contributed to the existing literature is the awareness that, for acquiring firms with a technology component in their mission statement, patent quality within a acquisition target is of higher importance than patent quantity, with respect to acquisition target selection.

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3. Empirical Analysis 3.1 Introduction Since this research is testing specific hypothesises and tries to find a relationship between the technology component in their mission statement and the level of technology within the target firm, the research can be classified as a conclusive research. In essence, the median values for four measurements for the level of technology within a firm (number of patents (in the year prior to the acquisition), patent stock, relative patent stock and patent citation rate) of two groups within the sample (firms with a technology component in their mission statement and firms without a technology component in their mission statement) are compared, and it is expected that the median value for the target firms linked to the firms that have a technology component in their mission statement will be significantly higher. The reason for choosing the median as a measurement instead of the (more common) mean is because of the fact that the sample is not normally distributed but is heavily skewed to the left. Therefore, statistical tests using the median are more appropriate.

3.2 Variables The independent variable in this research is the technology component as defined by David (1989). This variable is named technology and indicates whether or not the firm has included the technology component in its mission statement. When the firm did include the technology component in its mission statement, this variable has a value of one (1). When a firm that did not include the technology component in its mission statement, this variable has a value of zero (0). Hence, the independent variable is a binary variable. An example of a mission statement including the technology component is Roche with its mission statement: Our aim as a leading healthcare company is to create, produce and market innovative solutions of high quality for unmet medical needs. Our products and services help to prevent, diagnose and treat diseases, thus enhancing people's health and quality of life. We do this in a responsible and ethical manner and with a commitment to sustainable development respecting the needs of the individual, the society and the environment.

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The dependent variables in this research are the four measurements of the level of technology within a firm: the number of patents in the year prior to the acquisition (numpat), patent stock (patstock), relative patent stock (relpatst) and patent citation rate (citpat). The number of patents within a firm is an absolute number indicating how many patents the firm possesses in its portfolio in the year prior to the acquisition. Patent stock is a measurement for the level of technology within a firm. The patent stock of a firm is defined as follow: PS(t) = 0,85 * PS(t1) + patent_applications(t). In words, the patent stock in year (t) equals the patent stock in year (t-1) multiplied by one minus the constant knowledge depreciation rate of 15 percent (Hall, 1990), plus the number of patent applications by the firm in year (t). In order to allow for firm size, the relative patent stock is the patent stock divided by the total assets of the firm. The last measurement for the level of technology within a firm is the patent citation rate. The patent citation rate can best be defined as the number of citations the firms patents received up until five years after the patent publication date, corrected for the total number of patent applications in that period. The patent citation rate can be regarded as an appropriate measure of patent quality and patent value (Harhoff et al, 2003; Harhoff et al, 2005). However, since the number of patent citations also depends on the firms patent stock, the patent citation rate in this research is the number of patent citations divided by the firms patent stock. So, the patent citation rate in this research is actually the relative patent citation rate, although it is labelled as patent citation rate. The patent citation rate can now be regarded as a reliable measurement of the level of technology within a firm, which will be used in order to relate firms that have a technology component in their mission statement to the selected target firms for acquisition.

To find out whether firms that acquire target firms with more patent stock and/or a higher patent citation rate also pay a higher price for the acquisition, an OLS regression analysis will be run. Because total assets, equity and the profits of the target firms also have a high likelihood of influencing the deal value, these variables are added to the regression as independent variables. The total assets variable is the size of the target firm measured by the total assets of the target firm in the year of the acquisition. The equity variable relates to the total equity of the target firm in the year of the acquisition. Profits is a variable which relates to the target firms profit in the year of the acquisition. Relative patent stock and numpat are left out of the regression model because they are related to the patent stock and size variables.

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3.3 Hypotheses This research tries to investigate whether firms that have a technology component included in their mission statement differ from firms that do not have this component included in their mission statement, with respect to the level of technology present in the selected target firm. The research model, which can be found in Figure 1, provides an overview of the sample and how the sample groups are tested against each other. This test will be performed independently for the number of patents, patent stock, relative patent stock and patent citation rate of the target firms.

acquisition targets

T=1 T=0

Md(t=1) Md(t=1) > Md(t=0) Md(t=0)

Figure 1: Research model

The research uses four hypotheses to test this statement. The hypotheses used in this research to find this possible relationship are: Hypothesis 1a: Firms that have a technology component in their mission statement acquire firms with a higher number of patents than firms that do not have a technology component in their mission statement. By using the number of patents as a measure for level of technology within a firm, this research tries to find a possible relationship between the technology component in the firms mission statement and the target firms total number of patents. It is expected that the number of patents will be the least significant variable because of the fact that this is a pure absolute number and does not take into account matters such as firm size or patent quality.

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Hypothesis 1b: Firms that have a technology component in their mission statement acquire firms with a higher patent stock than firms that do not have a technology component in their mission statement. By using the patent stock as a measure for level of technology within a firm, this research tries to find a possible relationship between the technology component in the firms mission statement and the target firms patent stock. It is expected that patent stock will only be marginally significant because of the fact that this is a pure absolute number and does not take into account matters such as firm size or patent quality. Hypothesis 1c: Firms that have a technology component in their mission statement acquire firms with a higher relative patent stock than firms that do not have a technology component in their mission statement. By using the relative patent stock as a measure for level of technology within a firm, this research tries to find a possible relationship between the technology component in the firms mission statement and the target firms relative patent stock. As mentioned before, the relative patent stock is the firms patent stock divided by the firms total assets, therefore correcting patent stock for firm size. This variable is expected to be slightly significant as the relative patent stock does account for firm size. Hypothesis 1d: Firms that have a technology component in their mission statement acquire firms with a higher patent citation rate than firms that do not have a technology component in their mission statement. By using the patent citation rate as a measure for level of technology within a firm, this research tries to find a possible relationship between the technology component in the firms mission statement and the target firms patent citation rate. It is expected that the patent citation rate will be the most significant variable because of the fact that this rate provides the best measurement for patent quality within a firm and is therefore the best measurement of the level of technology within a firm.

3.4 Data Source This research uses the merger and acquisition database ZEPHYR from Bureau van Dijk Electronic Publishing. The research focuses on comparing the acquisition targets of several
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acquisitions in the database. The database consists of firms in Denmark, France, Germany, Italy, Norway, Spain, Sweden, Switzerland, the Netherlands, United Kingdom and United States from the year 2000 to 2002. This database is then linked to financial data from the Amadeus database by Bureau van Dijk Electronic Publishing and is then expanded with data on the target firms number of patent applications from the European Patent Office (EPO).

The composed database was then expanded with the mission statement of the acquiring firm for each acquisition. Database entries where mission statements could not be found were deleted, remaining with a database of 111 firms. The database was then expanded with a variable called technology. The technology variable is a binary variable that indicates whether or not the mission statement contains the technology component as mentioned by David (1989).

3.5 Methodology First, some preliminary tests will be performed on the acquisition target firms in the database. As a first test, a rather basic descriptive statistic will be performed to provide an overview of the sample and how the mean and standard deviations are distributed. This sample is then split up into two groups, the first group contains all entries where the firms mission statement contains the technology component whereas the other group exists of all firms where the mission statement does not contain the technology component. The null hypothesis in this research is that firms that have a technology component included in their mission statement acquire firms with a higher level of technology (measured by the four variables mentioned before) when compared to firms that do not have a technology component included in their mission statement. For these two groups the mean and standard deviation are provided in order to give additional information on the two groups within the sample. Because the sample is not normally distributed but is heavily skewed to the left (as can be seen in the research results), the median values are used throughout this research (Pallant, 2007). Therefore, the distribution of the median values for each of the four variables used in this research (numpat, patstock, relpatst and citpat) is provided. These median values are also provided specifically for the two groups defined above. For completeness, a histogram is given for each of the four variables to show the distribution and justify the use of the median instead of the mean.

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After these descriptive statistics, the relationship between the technology component in the mission statement and the level of technology within the target firm is examined through a Wilcoxon rank-sum test, otherwise known as the Mann-Whitney test. The Mann-Whitney test is used to test for differences between two independent groups on a continuous measure. The Mann-Whitney test is used to test for differences between two independent groups on a continuous measure. The Mann-Whitney test can be seen as the non-parametric variant of the T-test for two independent samples. Where the T-test compares the means of two groups, the Mann-Whitney test compares the median values of two groups. Basically, the Mann-Whitney test converts the values into a ranking across groups and then examines if the ranks per group are significantly different. Because the Mann-Whitney uses the median and ranks the scores, the distribution of the scores is not relevant, making this test perfect for samples with a skewed distribution. The Mann-Whitney test requires two variables: one categorical variable with two groups (the technology variable is used in this research) and one continuous variable (numpat, patstock, relpatst and citpat are used separately in this research) (Pallant, 2007).

4. Research Results First, the mean, standard deviation and extremes for the number of patents (numpat), patent stock (patstock), relative patent stock (relpatst) and patent citation rate (citpat) are provided in Table 1. The total number of observations (111) is sufficiently large for statistical analysis.

Table 1: Mean estimation

N numpat patstock relpatst citpat 111 111 111 111

Mean 59,86 22,9008 ,00030 ,4668

Std. Deviation Minimum Maximum 290,370 103,06390 ,001429 1,12632 0 ,00 ,000 ,00 2087 816,59 ,009 8,00

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Next, table 2 provides more specific information on the differences in the mean values and standard deviations for the two groups. The first group (technology = 0) exists of all firms whose mission statement does not contain the technology component whereas the other group (technology = 1) exists of all firms whose mission statement does contain the technology component. The two groups are almost identical in size so statistical output will not be affected by differences in group sizes within the sample.
Table 2: Mean estimation by technology variable technology 0 Mean N Std. Deviation 1 Mean N Std. Deviation Total Mean N Std. Deviation numpat 70,72 57 335,936 48,39 54 235,566 59,86 111 290,370 patstock 23,6266 57 1,13516E2 22,1346 54 9,18132E1 22,9008 111 1,03064E2 relpatst ,00034 57 ,001623 ,00026 54 ,001205 ,00030 111 ,001429 citpat ,2556 57 ,49472 ,6897 54 1,50856 ,4668 111 1,12632

The distribution of each variable (numpat, patstock, relpatst and citpat) can be examined by looking at the histograms provided below.

Histogram: Numpat

Histogram: Patstock

120

120

100

100

80

80

Frequency

60

Frequency
Mean =59,86 Std. Dev. =290,37 N =111

60

40

40

20

20 Mean =22,90 Std. Dev. =103,064 N =111 0 0 500 1000 1500 2000 2500 0,00 200,00 400,00 600,00 800,00 1000,00

numpat

patstock

Figure 3: Distribution of numpat variable

Figure 4: Distribution of patstock variable

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Histogram: Relpatstock

Histogram: Patent Citation Rate

120

80

100 60 80

Frequency

Frequency

60

40

40 20 20 Mean =3,00E-4 Std. Dev. =0,001 N =111 0 0,000E0 2,000E-3 4,000E-3 6,000E-3 8,000E-3 1,000E-2 0 0,00 2,00 4,00 6,00 8,00 Mean =0,47 Std. Dev. =1,126 N =111

relpatst

citpat

Figure 5: Distribution of relpatst variable

Figure 6: Distribution of citpat variable

Because the sample and the corresponding variables are not normally distributed but are heavily skewed to the left, the means cannot be interpreted reliably. Therefore, the median values are used throughout this research (Pallant, 2007). An overview of the median distribution is provided in table 3. This table indicates how many observations within the sample are greater than, or smaller than or equal to the median. This distribution is then split up into whether or not the corresponding observation is part of an acquisition where the acquiring firm does or does not have the technology component in their mission statement.
Table 3: Frequencies technology 0 numpat > Median <= Median patstock > Median <= Median relpatst > Median <= Median citpat > Median <= Median 20 37 14 43 14 43 14 43 1 29 25 19 35 19 35 26 28

After these descriptive statistics, the relationship between the technology component in the mission statement and the level of technology within the target firm is examined through a Wilcoxon rank-sum test, otherwise known as the Mann-Whitney test. In this research, the first Mann-Whitney test examines whether there is a significant difference in the median values for
30

the number of patents (numpat) between the group of firms that have a technology component included in their mission statement (technology=1) and the group of firms that do not have this component included in their mission statement (technology=0). The next three MannWhitney tests will compare the same groups on three other variables, namely patent stock, relative patent stock and patent citation rate. Below are the results found in SPSS.
Table 4: Test Statisticsa numpat Mann-Whitney U Wilcoxon W Z Asymp. Sig. (2-tailed)
a. Grouping Variable: technology

patstock 1,384E3 3,037E3 -1,132 ,101 ,258

relpatst 1,404E3 3,058E3 -,982 ,326

citpat 1,196E3 2,849E3 -2,355 ,019

1,286E3 2,940E3 -1,640

As can be seen in the output above, the z-value for the numpat variable is -1.0640. The pvalue is 0.101, which is larger than 0.05. Therefore, the null hypothesis that there is no difference between the two groups of firms acquiring target firms that have a certain number of patents, cannot be rejected. From this Mann-Whitney test it can therefore be concluded that there is no significant difference in the number of patents held by the target firms when comparing these target firms to the two groups of acquiring firms (technology = 1 and technology = 0).

For the patent stock variable of the target firms, the Mann Whitney test also does not reveal any significant difference between firms with a technology component in their mission statement and firms without this mission statement component (z-value: -1.132, p-value: 0.258). The null hypothesis that there is no difference between the two groups of acquiring firms on the patent stock variable of their target firms therefore cannot be rejected.

With a z-value of -0.982 and a p-value of 0.326, the relpatst variable, which measures the relative patent stock of the target firms, this test also indicates that there is no significant difference between the two groups of acquiring firms, with respect to the relpatst variable in their target firms. Firms that have a technology component in their mission statement do not acquire firms with significantly higher relative patent stock than firms that do not have this
31

technology component in their mission statement. Therefore, the null hypothesis belonging to hypothesis 1c cannot be rejected.

The last variable is the patent citation rate, which measures the quality of the patents. Here, it becomes clear that testing for a difference in patent citation rate between the two groups of acquiring firms does result in a significant difference. The z-value is -2.355 and the p-value is 0.019, which is smaller than 0.05. The null-hypothesis stating that there is no significant difference in the patent citation rate of the target firms between firms that have a technology component included in their mission statement and firms that do not have this component included in their mission statement can thus be rejected. This implies that there is a significant difference between firms that have a technology component in their mission statement and firms that do not have this component in their mission statement, with respect to the patent citation rate in the firms they target for acquisition.

In order to examine the trend of this difference, the mean rank of the two groups has to be compared. The mean rank corrects for differences in sample size per group (Pallant, 2007). Here, it shows that firms that have a technology component (technology = 1) indeed target firms with a higher patent citation rate. The mean rank of the patent citation rate of the target firms acquired by firms with a technology component in their mission statement target is 62.35, while the mean rank of the patent citation rate of the target firms acquired by firms without a technology component target is only 49.98.

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Table 5: Ranks technology numpat 0 1 Total patstock 0 1 Total relpatst 0 1 Total citpat 0 1 Total N 57 54 111 57 54 111 57 54 111 57 54 111 49,98 62,35 2849,00 3367,00 53,64 58,49 3057,50 3158,50 53,28 58,87 3037,00 3179,00 Mean Rank 51,57 60,68 Sum of Ranks 2939,50 3276,50

To test for the strength of this relationship between the variables, and to find out whether this significant result also is an important result, the effect size is calculated. When a MannWhitney U test is performed, the effect size can be calculated by dividing the z-value by the root of the sample size, ending up with a value of -2.355/111 = 0.224. This implies that, according to Pallant (2007), the relationship between the technology and citpat variable is of small to medium size.

After having found that there is a difference between firms with a technology component in their mission statement and firms without this technology component in their mission statement, with respect to which firms they target, another interesting question comes to mind. Do firms with a technology component in their mission statement pay a higher acquisition price for the selected target firms? Again, because the sample is not normally distributed, adjustments have to be made. The dvalue variable is transformed by taking the log. Transforming this variable by taking the log will make the distribution more normal, as is confirmed by the histogram below.

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Figure 7: Distribution of log(dvalue) variable

To find out whether firms that acquire target firms with more patent stock and/or a higher patent citation rate also pay a higher price for the acquisition, an OLS regression analysis will be run. Because size, equity and the profits of the target firms also have a high likelihood of influencing the deal value, these variables are added to the regression as independent variables. Relative patent stock and numpat are left out of the regression model because they are related to the patent stock and size variables. When two independent variables in a regression model are highly correlated, this will confound the results. This is called multicollinearity. According to Bowerman and O' Connell (2003) when strong multicollinearity exists, sampling variation can result in least squares point estimates that differ substantially from the true values of the regression parameters.

Running the OLS regression with the log of the dvalue variable as dependent variable and citpat, patstock, total_assets, profits and equity as independent variables provides the following results:
Table 6: Correlations dvaluelog Pearson Correlation dvaluelog patstock citpat profits total_as equity 1,000 ,395 ,172 ,183 ,395 ,399 patstock ,395 1,000 ,233 ,297 ,024 ,931 citpat ,172 ,233 1,000 ,074 ,175 ,186 profits ,183 ,297 ,074 1,000 -,045 ,498 total_as ,395 ,024 ,175 -,045 1,000 ,034 equity ,399 ,931 ,186 ,498 ,034 1,000

34

Sig. (1-tailed)

dvaluelog patstock citpat profits total_as equity

. ,000 ,070 ,058 ,000 ,000 75 75 75 75 75 75

,000 . ,022 ,005 ,419 ,000 75 75 75 75 75 75

,070 ,022 . ,264 ,066 ,055 75 75 75 75 75 75

,058 ,005 ,264 . ,349 ,000 75 75 75 75 75 75

,000 ,419 ,066 ,349 . ,385 75 75 75 75 75 75

,000 ,000 ,055 ,000 ,385 . 75 75 75 75 75 75

dvaluelog patstock citpat profits total_as equity

Table 7: Coefficientsa Standardized Unstandardized Coefficients Coefficients Model 1 (Constant) patstock citpat profits total_as equity B 9,634 ,005 ,035 1,973E-7 1,819E-6 4,929E-8 Std. Error ,235 ,005 ,215 ,000 ,000 ,000 ,288 ,017 ,076 ,386 ,077 Beta t 40,955 ,873 ,163 ,553 3,776 ,214 Sig. ,000 ,386 ,871 ,582 ,000 ,831 ,091 ,899 ,532 ,954 ,077 10,948 1,112 1,879 1,048 13,019 Collinearity Statistics Tolerance VIF

a. Dependent Variable: dvaluelog

After examining the correlation matrix, it can be stated that equity is correlated with patent stock because the correlation rate is 0.931. The variance inflation factors show that multicollinearity exists among the variables. Multicollinearity exists if the VIF is higher than 10 and the tolerance value is lower than 0.1. The equity variable is therefore taken out of the regression model. After eliminating the equity variable from the regression model, the patent stock variable returns a significant result in predicting the (log) deal value of the acquisition. The following output is the regression model with log deal value as dependent variable and citpat, patstock, total_as and profits as independent variables.

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Table 8: Model Summary Model 1 R ,560

a

R Square ,313

Adjusted R Square ,274

Std. Error of the Estimate 1,71806

a. Predictors: (Constant), total_as, patstock, citpat, profits

Table 9: ANOVAb Model 1 Regression Residual Total Sum of Squares 94,236 206,622 300,858 df 4 70 74 Mean Square 23,559 2,952 F 7,981 Sig. ,000a

a. Predictors: (Constant), total_as, patstock, citpat, profits b. Dependent Variable: dvaluelog

Table 10: Coefficientsa Standardized Unstandardized Coefficients Coefficients Model 1 (Constant) patstock ,006 Citpat ,029 Profits total_as 2,465E-7 1,830E-6 B 9,629 Std. Error ,232 ,002 ,355 Beta t 41,433 3,336 Sig. ,000 ,001 ,867 1,154 Collinearity Statistics Tolerance VIF

,211 ,000 ,000

,014 ,094 ,388

,136 ,909 3,850

,892 ,366 ,000

,916 ,909 ,966

1,091 1,100 1,035

a. Dependent Variable: dvaluelog

The overall regression model is significant (with a p-value of 0.000), as can be seen in the ANOVA table. Furthermore, the issue of multicollinearity is resolved as all variance inflation factors are around 1. The regression-equation looks as follows: Dvaluelog = 9.629 + 0.355(patstock) + 0.014(citpat) + 0.094(profits) + 0.388(total_as) + e. From the data it can be concluded that the intercept, patstock and total_as variables are significant, which implies that these variables explain a significant portion of the variation in the log deal value. The patstock variable and the target firm size, as measured by total assets,
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are significant predictors of the (log) deal value. The citpat and profits variables are insignificant. From these results it can be concluded that the target firm's acquisition price is largely dependent on the size and the patent stock of the target firm. The Rsquared is only 0.313, which implies that the model only accounts for 31,3% of the total variation in the log of the deal value. It is expected that other variables in the dataset might also account for some of the variance in the log of deal value. However, several experiments using other models (by adding and eliminating variables, such as the technology variable) revealed that the model as explained above is the most appropriate model.

Because of the fact that target firms for acquiring firms that have a technology component in their mission statement posses a higher quality of patents (as proven by the Mann Whitney test), a next step in this research would be to examine whether these acquiring firms also pay a higher price for their acquisitions when compared to firms that do not have this component in their mission statement. Therefore, an independent samples t-test is run. This test examines whether or not there is a significant difference in the mean log deal value of the acquiring firm for both groups (technology = 1 and technology = 0)
Table 11: Levene's Test for Equality of Variances t-test for Equality of Means dvaluelog 95% Interval Sig. F Equal variances assumed Equal variances not assumed ,136 Sig. ,713 t df tailed) ,146 (2- Mean Std. Error Difference Upper Confidence of the

Difference Difference Lower -,53781 ,36740

-1,464 109

-1,26597 ,19036

-1,463 108,170 ,147

-,53781

,36773

-1,26669 ,19108

The independent samples t-test is insignificant. This result is expected as the log deal value is not predicted by the patent citation rate but by the patent stock and the size of the target firm. The patent stock of the target firms for both groups (technology = 1 and technology = 0) is not significantly different. Therefore, the result can be regarded as expected and logical. Because equal variances are assumed (the null hypothesis: variance(technology = 1) = variance(technology = 0) cannot be rejected), the p-value of the test is 0.146. This implies that the null hypothesis: the means of the two groups of firms are the same, cannot be rejected.
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Therefore it is not assumed that firms that have a technology component in their mission statement pay more for their acquisitions than firms that do not have such a component in their mission statement.

5. Conclusion The aim of this research was to find out if there is a relationship between mission statement content and acquisition target selection. By comparing characteristics of the acquisition targets for two groups of firms, the first group of firms having a technology component in their mission statement and the second group of firms not having a technology component in their mission statement, several hypothesis were tested. Three variables measuring the quantity of patents within a target firm found to have no significant relationship with target selection by the acquiring firm having a technology component in their mission statement. The fourth and final variable, the patent citation rate, is a measurement of the quality of the patents within a target firm. This variable found to have a significant relationship with target selection by the acquiring firm having a technology component in their mission statement. Hypothesis 1a: Firms that have a technology component in their mission statement acquire firms with a higher number of patents than firms that do not have a technology component in their mission statement. Hypothesis 1b: Firms that have a technology component in their mission statement acquire firms with a higher patent stock than firms that do not have a technology component in their mission statement. Hypothesis 1c: Firms that have a technology component in their mission statement acquire firms with a higher relative patent stock than firms that do not have a technology component in their mission statement. Hypothesis 1d: Firms that have a technology component in their mission statement acquire firms with a higher patent citation rate than firms that do not have a technology component in their mission statement.

From the literature, the patent citation rate could be regarded as the variable that was more

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focused on patent quality than on patent quantity, which was the main focus of the other three variables used in this research. Interestingly, the data provides evidence that acquiring firms with a technology component in their mission statement target firms with a higher patent citation rate, when compared to acquiring firms without a technology component in their mission statement, but no evidence of the same relationship for the other three variables can be found. Hence, it can be concluded that patent quality, as measured by the patent citation rate, is of significant influence on acquisition target selection while the other three variables, which are focused on patent quantity, have proven not to be significant in acquisition target selection. For acquiring firms with a technology component in their mission statement, patent quality within a acquisition target is of higher importance than patent quantity, and these firms tend to focus on the acquisition targets having a high patent quality, as measured by the patent citation rate.

An additional regression did not recognize a significant relationship between the patent citation rate and the deal value. Therefore it is not assumed that firms that have a technology component in their mission statement pay more for their acquisitions than firms that do not have such a component in their mission statement. A possible consequence of this finding can be that firms should always pay attention to the patent citation rate of their acquisition target as there does not seem to be a premium price paid for these firms. However, additional research has to be performed to support such conclusions. Further research will be necessary to compensate for the limitations mentioned in the respective chapter of this research.

6. Limitations There are some limitations to this research which might influence the findings provided above. First, it was mentioned that, according to Lipczynski & Wilson (2001), small firms do not always apply for a patent because this procedure demands a lot of resources, resources that small firms do not have or cannot afford to allocate to patent applications. The measures used in this research (number of patents, patent citation rate, patent stock and relative patent stock) are not collectively exhaustive in representing the level of technology, thus implying that there are other measures for the level of technology which this research does not control for. For small firms these other measures might be a better reflection of the level of

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technology. Also, not all innovations are patentable, which can influence the results because firms that have a high level of technology but have little patentable innovations are not regarded as high technology firms (Hall, Jaffe & Trajtenberg, 2005).

Another limitation is that, because the sample is heavily skewed to the left, the median values are used for statistical research instead of the (more common and more robust) mean values. Still, the skewness of the sample might have an influence on the research results. Non parametric tests have the disadvantage that they tend to be less sensitive than their more powerful parametric cousins, and may therefore fail to detect differences between groups that actually exist (Pallant, 2007). Also, while the sample size is sufficiently large, an even larger sample size may have an impact on the results because this diminishes the impact of outliers and creates a more stable base for conclusions.

Another factor that might potentially influence the research results is the classification of the mission statements within the dataset. The mission statements in the dataset have been read and classified (by issuing a value of 1 to the technology variable when the mission statement contains a technology component as mentioned by David (1998) and issuing a value of 0 to the technology variable when the mission statement does not contain this technology component) by the author of this research and this classification is then reviewed by a fellow student from Maastricht University. However, there might still be some bias in the classification of the mission statements, which might have an impact on the research results.

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7. References

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Albert, S. & Whetten, D.A. (1985). Organizational identity. Cummings, L.L. and Staw, B.M. (Eds), Research in Organizational Behaviour, Vol. 7, pp. 263-95.

Albert (1991). Direct validation of citation counts as indicators of industrially important patents. Research Policy 20, 251259.

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