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

50 Pages Posted: 15 Jan 2009 Last revised: 17 Dec 2022

See all articles by Josh Lerner

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Morten Sorensen

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Per Strömberg

Swedish House of Finance; ECGI; CEPR

Multiple version iconThere are 3 versions of this paper

Date Written: December 2008

Abstract

A long-standing controversy is whether LBOs relieve managers from short-term pressures from public 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 are associated with a decrease in these activities. Relying on standard measures of patent quality, we find that patents granted to firms involved 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.

Suggested Citation

Lerner, Josh and Sorensen, Morten and Stromberg, Per, Private Equity and Long-Run Investment: The Case of Innovation (December 2008). NBER Working Paper No. w14623, Available at SSRN: https://ssrn.com/abstract=1327245

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

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Harvard University - Entrepreneurial Management Unit

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Morten Sorensen

Dartmouth College - Tuck School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Per Stromberg

Swedish House of Finance ( email )

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ECGI ( email )

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Belgium

HOME PAGE: http://https://www.hhs.se/en/houseoffinance/about/people/people-container/per-stromberg/

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