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Do Private Equity Firms Foster Innovation? Evidence from French LBOs

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  • Anne-Laure Le Nadant

    (University of Caen Basse-Normandie, CREM-CNRS, UMR 6211)

  • Frédéric Perdreau

    (University of St-Etienne, COACTIS, EA 4161)

Abstract

Agency theory has historically presented buyouts as a superior governance framework that generates economic efficiencies in the short term but these transactions might have a negative impact on long-term growth and innovation. In this study, we use a strategic entrepreneurship perspective to argue that private equity firm's extensive network and relationships, and expertise and competencies help managers to innovate. Using a propensity score methodology, we provide an empirical analysis of the innovative efforts of a sample of 89 French manufacturing firms that underwent a buyout between 2001 and 2005. The matching estimates (average treatment on the treated, ATT) of the effect of LBOs on firm level of innovation expenditures in 2006 show no significant differences between LBO targets and comparable companies that did not go through an LBO. In contrast, we find significant effects of LBOs on both service innovation and marketing innovations in design and packaging and product promotion. Results suggest that private equity firms provide marketing capabilities or encourage managers of LBO targets to build new innovation strategies.

Suggested Citation

  • Anne-Laure Le Nadant & Frédéric Perdreau, 2012. "Do Private Equity Firms Foster Innovation? Evidence from French LBOs," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201209, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201209
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    File URL: https://crem-doc.univ-rennes1.fr/wp/2012/201209.pdf
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    References listed on IDEAS

    as
    1. Malone, Stewart C., 1989. "Characteristics of smaller company leveraged buyouts," Journal of Business Venturing, Elsevier, vol. 4(5), pages 349-359, September.
    2. Mike Wright & Robert E. Hoskisson & Lowell W. Busenitz & Jay Dial, 2001. "Finance and management buyouts: Agency versus entrepreneurship perspectives," Venture Capital, Taylor & Francis Journals, vol. 3(3), pages 239-261, July.
    3. 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.
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    More about this item

    Keywords

    Buyouts; Innovation; Private Equity Firms; Strategic Entrepreneurship;

    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
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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