The Effect of U.S. Public-to-Private Leveraged Buyouts on Innovation

Abstract

With a large sample of public-to-private leveraged buyouts from 1980 to 2006, we find that LBO targets are equally likely to hold patents as other publicly-traded firms. Using a difference-in-differences approach, we find that LBOs reduce patent flows by one third. This reduction results from a 23% decline in new grants and 7% fewer purchases. Around one fifth of patent-holding LBO targets sell patents immediately after their buyout, liquidating an average of 45% of their portfolio. After an LBO, patents are granted at a reduced rate, receive the same level of citations, and make 16% more citations.

Keywords: Leverage buyout, private equity, innovation, patents, R&D

JEL Classification: G24, G34, G38, O32, O34, D22