Working Paper: NBER ID: w14623
Authors: Josh Lerner; Morten Sørensen; Per Strömberg
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.
Keywords: Private Equity; Innovation; Patenting; Leveraged Buyouts
JEL Codes: G24; G32; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private equity investments (G24) | innovation (O35) |
| private equity investments (G24) | patent quality (L15) |
| private equity investments (G24) | patent quantity (D45) |
| private equity investments (G24) | patenting activity (O34) |
| private equity investments (G24) | patent originality and generality (O34) |
| private equity investments (G24) | focus of patent portfolios (O34) |