The Effects of Privatization on R&D Investments and Patent Productivity

Abstract

Over the last two decades privatization programs in different countries have radically reduced the role of the State as a key player in the economic arena. We use agency theory to discuss the theoretical elationship between changes in the firm's principal-agent structure following privatization, incentives to invest in R&D and R&D performance. We compare the pre- and post- privatization R&D effort and outcomes of 35 companies that were fully or partially privatized in the European Union through public share offers between 1980 and 1997. Our results show that, after controlling for inter-industry differences, the switch to private ownership leads to a decrease in overall R&D effort and to a ontemporaneous increase in the quantity of patents granted and in their quality, measured by the intensity of citations. Taken together, these findings support the expectation of increased innovation productivity following State divestment.

Keywords: Privatization, R&D Investments, Patents, Inventions

JEL Classification: G34, O32