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

  • Lerner, Josh

    ()

    (Harvard business School)

  • Strömberg, Per

    ()

    (Institute for Financial Research)

  • Sörensen, Morten

    ()

    (Columbia University)

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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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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  1. Steven N. Kaplan & Jeremy C. Stein, 1991. "The Evolution of Buyout Pricing and Financial Structure," NBER Working Papers 3695, National Bureau of Economic Research, Inc.
  2. Lanjouw, Jean O & Pakes, Ariel & Putnam, Jonathan, 1998. "How to Count Patents and Value Intellectual Property: The Uses of Patent Renewal and Application Data," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 405-32, December.
  3. Frank R Lichtenberg & Donald Siegel, 1989. "The Effects Of Leveraged Buyouts On Productivity And Related Aspects Of Firm Behavior," Working Papers 89-5, Center for Economic Studies, U.S. Census Bureau.
  4. Malcolm Baker & Jeremy C. Stein & Jeffrey Wurgler, 2002. "When Does the Market Matter? Stock Prices and the Investsment of Equity-Dependent Firms," Harvard Institute of Economic Research Working Papers 1978, Harvard - Institute of Economic Research.
  5. Bronwyn Hall & Jacques Mairesse & Laure Turner, 2007. "Identifying Age, Cohort, And Period Effects In Scientific Research Productivity: Discussion And Illustration Using Simulated And Actual Data On French Physicists," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 16(2), pages 159-177.
  6. Stein, Jeremy C., 1988. "Takeover Threats and Managerial Myopia," Scholarly Articles 3708937, Harvard University Department of Economics.
  7. Michael C. Jensen, 1994. "The Modern Industrial Revolution, Exit, And The Failure Of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(4), pages 4-23.
  8. Bronwyn H. Hall, 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," NBER Working Papers 4096, National Bureau of Economic Research, Inc.
  9. Meulbroek, Lisa K, et al, 1990. "Shark Repellents and Managerial Myopia: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1108-17, October.
  10. 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.
  11. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
  12. Jean O. Lanjouw & Ariel Pakes & Jonathan Putnam, 1996. "How to Count Patents and Value Intellectual Property: Uses of Patent Renewal and Application Data," NBER Working Papers 5741, National Bureau of Economic Research, Inc.
  13. Kaplan, Steven N & Stein, Jeremy C, 1993. "The Evolution of Buyout Pricing and Financial Structure in the 1980s," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 313-57, May.
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