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Private Equity and Long-Run Investment: The Case of InnovationMorten SorensenColumbia Business School; National Bureau of Economic Research (NBER); Swedish Institute for Financial Research (SIFR) Per StrömbergStockholm School of Economics; University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); Stockholm School of Economics - Department of Finance Josh LernerHarvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER) February 1, 2008 EFA 2009 Bergen Meetings Paper Abstract: 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, G32 working papers seriesDate posted: February 17, 2008 ; Last revised: August 29, 2011Suggested CitationContact Information
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