Premium
LBOs, debt and R&D intensity
Author(s) -
Long William F.,
Ravenscraft David J.
Publication year - 1993
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.4250140910
Subject(s) - leveraged buyout , r&d intensity , debt , economics , capital (architecture) , monetary economics , business , private equity , finance , management , archaeology , history
This paper deals with the impact of debt on R&D intensity for firms undergoing a leveraged buyout (LBO). We develop seven hypotheses based on capital market imperfection theories and agency theory. To test these hypotheses, we compare 72 R&D performing LBOs with 3329 non‐LBO control observations and 126 LBOs with little or no R&D expenditures. The regressions yield four statistically significant major findings. First, pre‐LBO R&D intensity is roughly one‐half of the overall manufacturing mean and two‐thirds of the firm's industry mean. Second, LBOs cause R&D intensity to drop by 40 percent. Third, large firms tend to have smaller LBO‐related declines in R&D intensity. Fourth, R&D intensive LBOs outperform both their non‐LBO industry peers and other LBOs without R&D expenditures.