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

Author

Listed:
  • 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.

Suggested Citation

  • Lerner, Josh & Strömberg, Per & Sörensen, Morten, 2009. "Private Equity and Long-Run Investment: The Case of Innovation," SIFR Research Report Series 66, Institute for Financial Research.
    • Handle: RePEc:hhs:sifrwp:0066
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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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