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Private Equity and the Innovation Strategies of Entrepreneurial Firms: Empirical Evidence from the Small Business Innovation Research Program

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  • Albert N. Link
  • Christopher J. Ruhm
  • Donald S. Siegel

Abstract

There is great interest in evaluating the impact of private equity investments on innovation and economic growth. However, there is no direct empirical evidence on the effects of such transactions on the innovation strategies of entrepreneurial firms. We fill this gap by examining a rich project-level data set consisting of entrepreneurial firms receiving Small Business Innovation Research (SBIR) program research awards. We find that SBIR firms attracting private equity investments are significantly more likely to license and sell their technology rights and engage in collaborative research and development agreements. Our results suggest that private equity investments accelerate the development and commercialization of research-based technologies, thus contributing to economic growth. We conclude that both public investments and private investments are key to innovation performance.

Suggested Citation

  • Albert N. Link & Christopher J. Ruhm & Donald S. Siegel, 2012. "Private Equity and the Innovation Strategies of Entrepreneurial Firms: Empirical Evidence from the Small Business Innovation Research Program," NBER Working Papers 18297, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18297
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    References listed on IDEAS

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    1. Albert N. Link & John T. Scott, 2013. "Governments as entrepreneur: Evaluating the commercialization success of SBIR projects," Chapters,in: Public Support of Innovation in Entrepreneurial Firms, chapter 2, pages 25-38 Edward Elgar Publishing.
    2. Steven Davis & John Haltiwanger & Ron Jarmin & Josh Lerner & Javier Miranda, 2008. "Private Equity and Employment," Working Papers 08-07r, Center for Economic Studies, U.S. Census Bureau, revised Oct 2011.
    3. Albert N. Link & John T. Scott, 2013. "The exploitation of publicly funded technology," Chapters,in: Public Support of Innovation in Entrepreneurial Firms, chapter 8, pages 127-135 Edward Elgar Publishing.
    4. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2015. "Do Private Equity Owned Firms Have Better Management Practices?," American Economic Review, American Economic Association, vol. 105(5), pages 442-446, May.
    5. Richard Harris & Donald S. Siegel & Mike Wright, 2005. "Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 148-153, February.
    6. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
    7. Dora Gicheva & Albert Link, 2013. "Leveraging entrepreneurship through private investments: does gender matter?," Small Business Economics, Springer, vol. 40(2), pages 199-210, February.
    8. Albert N. Link & John T. Scott, 2013. "Employment growth from public support of innovation in small firms," Chapters,in: Public Support of Innovation in Entrepreneurial Firms, chapter 3, pages 41-64 Edward Elgar Publishing.
    9. Albert N. Link & Christopher J. Ruhm, 2013. "Public knowledge, private knowledge: the intellectual capital of entrepreneurs," Chapters,in: Public Support of Innovation in Entrepreneurial Firms, chapter 7, pages 113-126 Edward Elgar Publishing.
    10. Albert N. Link & Christopher J. Ruhm, 2013. "Bringing science to market:commercializing from NIH SBIR awards," Chapters,in: Public Support of Innovation in Entrepreneurial Firms, chapter 1, pages 3-24 Edward Elgar Publishing.
    11. Bronwyn H. Hall & Albert N. Link & John T. Scott, 2003. "Universities as Research Partners," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 485-491, May.
    12. Steven J. Davis & John Haltiwanger & Kyle Handley & Ron Jarmin & Josh Lerner & Javier Miranda, 2014. "Private Equity, Jobs, and Productivity," American Economic Review, American Economic Association, vol. 104(12), pages 3956-3990, December.
    13. Wright, Mike & Thompson, Steve & Robbie, Ken, 1992. "Venture capital and management-led, leveraged buy-outs: A European perspective," Journal of Business Venturing, Elsevier, vol. 7(1), pages 47-71, January.
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    Cited by:

    1. David B. Audretsch & Erik E. Lehmann & Stefano Paleari & Silvio Vismara, 2016. "Entrepreneurial finance and technology transfer," The Journal of Technology Transfer, Springer, vol. 41(1), pages 1-9, February.
    2. Silvia Magri, 2014. "Does issuing equities help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Temi di discussione (Economic working papers) 978, Bank of Italy, Economic Research and International Relations Area.
    3. Dennis Leyden & Albert Link, 2015. "Toward a theory of the entrepreneurial process," Small Business Economics, Springer, vol. 44(3), pages 475-484, March.
    4. Barry Bozeman & Albert N. Link, 2015. "Toward an assessment of impacts from US technology and innovation policies," Science and Public Policy, Oxford University Press, vol. 42(3), pages 369-376.
    5. Silvia Magri, 2014. "Does issuing equity help R&D activity? Evidence from unlisted Italian high-tech manufacturing firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 23(8), pages 825-854, November.
    6. Leyden, Dennis P. & Link, Albert N. & Siegel, Donald S., 2014. "A theoretical analysis of the role of social networks in entrepreneurship," Research Policy, Elsevier, vol. 43(7), pages 1157-1163.
    7. Amess, Kevin & Stiebale, Joel & Wright, Mike, 2016. "The impact of private equity on firms׳ patenting activity," European Economic Review, Elsevier, vol. 86(C), pages 147-160.
    8. Scott, John T. & Scott, Troy J., 2016. "The entrepreneur's idea and outside finance: Theory and evidence about entrepreneurial roles," European Economic Review, Elsevier, vol. 86(C), pages 118-130.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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