Public-to-Private Buyouts and Innovation

52 Pages Posted: 21 Dec 2018 Last revised: 25 Nov 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Rejo Peter

York University - Schulich School of Business

Monika Tarsalewska

University of Exeter Business School

Date Written: December 3, 2018


We study the effect of public-to-private buyout transactions on investments in innovation using an international sample over the 1997-2017 period. We use patent counts and citations to proxy for the quantity, quality, and economic importance of innovation. Our results are based on time analysis and matched sample regressions. The data indicate that buyouts are associated with a significant reduction in patents and patent citations, including a reduction in radical (i.e., more scientific) patents. When we split the sample into institutional and management buyouts, the negative effect of buyouts is confirmed only for institutional buyouts, suggesting that highly leveraged transactions prevent target firms from adopting long-term investments. This finding is confirmed by reductions in innovator employment and innovation efficiency subsequent to going private. Moreover, the data indicate that the negative effect is most prevalent for transactions where the cost of the deal’s debt financing is higher than the post-buyout cost of the debt. We rule out alternative explanations for these findings, including but not limited to outliers, truncation bias, and endogeneity.

Keywords: Buyouts, Private Equity, Innovation

JEL Classification: G23, G24, O31

Suggested Citation

Cumming, Douglas J. and Peter, Rejo and Tarsalewska, Monika, Public-to-Private Buyouts and Innovation (December 3, 2018). Available at SSRN: or

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


Rejo Peter

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3

Monika Tarsalewska (Contact Author)

University of Exeter Business School ( email )

XFI building, Streatham Campus
Rennes Drive
Exeter, Devon EX4 4ST
United Kingdom

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