49 Pages Posted: 17 Feb 2008 Last revised: 25 Oct 2014
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: Suggested Citation
Sorensen, Morten and Strömberg, 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: https://ssrn.com/abstract=1088543 or http://dx.doi.org/10.2139/ssrn.1088543
By Josh Lerner