Going Private and Innovation

Abstract

In this paper, we investigate how going private affects corporate innovation activities. We compare the innovation activities of firms that went private to the innovation activities of firms that received a going-private offer but stayed as public for reasons unrelated to innovation. Using patent-based metrics, we find that the scale of innovation grows after going private. The most important innovations after going private have higher quality relative to the most important innovations before going private. Firms that go private also produce more influential patents in the following years after going private. In line with the predictions of agency theories, our results suggest that going private has a significant positive impact on the innovation performance of listed firms. We also find that, in public-to-private transactions, being acquired by a private equity (PE) firm does not bring an additional performance boost in terms of innovation in comparison to being acquired by a non-PE firm.

Keywords: Innovation, going private, patent, ownership structure, public vs private, LBO

JEL Classification: G30, G34, O16, O30