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

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  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14623.

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Date of creation: Dec 2008
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Publication status: published as Josh Lerner & Morten Sorensen & Per Strömberg, 2011. "Private Equity and Long‐Run Investment: The Case of Innovation," Journal of Finance, American Finance Association, vol. 66(2), pages 445-477, 04.
Handle: RePEc:nbr:nberwo:14623

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