(), Per Strömberg
() and Morten Sörensen
Josh Lerner: Harvard business School
Per Strömberg: Institute for Financial Research, Postal: Drottninggatan 89, 11th floor, SE-113 60 Stockholm, Sweden
Morten Sörensen: 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.
49 pages, February 15, 2009
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