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We control for time invariant unobservable firm characteristics by including firm fixed effects, Firm.CONTEXT:
To examine the effect of M&A on a firm’s innovation output, we estimate the following empirical model in our baseline OLS regressions:
where i indexes firms, t indexes time, and n is equal to zero, one, and two. Ln(Innovation) is the dependent variable and can be one of the following two measures: the natural logarithm of the number of patents filed by the firm, Ln(Pat), and the natural logarithm of the number of non-self citations per patent, Ln(Cites/Pat). Z is a vector of firm and industry characteristics that may affect a firm’s innovation productivity discussed in Section 2.3. Year captures fiscal year fixed effects. We control for time invariant unobservable firm characteristics by including firm fixed effects, Firm. Heteroskedasticity-robust standard errors are clustered at the firm level as suggested by Petersen (2009).4