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

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  • Lerner, Josh

    ()
    (Harvard business School)

  • Strömberg, Per

    ()
    (Institute for Financial Research)

  • Sörensen, Morten

    ()
    (Columbia University)

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 trans actions 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.

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Bibliographic Info

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 66.

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Length: 49 pages
Date of creation: 15 Feb 2009
Date of revision:
Handle: RePEc:hhs:sifrwp:0066

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Keywords: Private equity; patents; innovation; short-termism;

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  12. Hall, Bronwyn H & Griliches, Zvi & Hausman, Jerry A, 1986. "Patents and R and D: Is There a Lag?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 265-83, June.
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