Private Equity and Long-Run Investment: The Case of Innovation

49 Pages Posted: 17 Feb 2008 Last revised: 25 Oct 2014

See all articles by Morten Sorensen

Morten Sorensen

Dartmouth College - Tuck School of Business

Per Strömberg

Swedish House of Finance; ECGI; CEPR

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2008


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.

Keywords: Buyouts, LBOs, Innovation, Patents

JEL Classification: O31, O32, G24, G32

Suggested Citation

Sørensen, Morten and Stromberg, Per and Lerner, Josh, Private Equity and Long-Run Investment: The Case of Innovation (February 1, 2008). EFA 2009 Bergen Meetings Paper, Available at SSRN: or

Morten Sørensen

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Per Stromberg

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

HOME PAGE: http://

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)


Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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