Private Equity and Long-Run Investment: The Case of Innovation
Columbia Business School; National Bureau of Economic Research (NBER); Swedish Institute for Financial Research (SIFR)
Swedish House of Finance
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
February 1, 2008
EFA 2009 Bergen Meetings Paper
A long-standing controversy is whether LBOs relieve managers from short-term pressures of dispersed shareholders, or whether LBO funds themselves are driven by short-term profit motives and sacrifice long-term growth to boost short-term performance. We investigate 495 transactions with a focus on one form of long-term activities, namely investments in innovation as measured by patenting activity. We find no evidence that LBOs decrease these activities. Relying on standard measures of patent quality, we find that patents applied for by firms in private equity transactions are more cited (a proxy for economic importance), show no significant shifts in the fundamental nature of the research, and are more concentrated in the most important and prominent areas of companies' innovative portfolios.
Number of Pages in PDF File: 49
Keywords: Buyouts, LBOs, Innovation, Patents
JEL Classification: O31, O32, G24, G32working papers series
Date posted: February 17, 2008 ; Last revised: August 29, 2011
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