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Private Equity and Long‐Run Investment: The Case of Innovation
Author(s) -
LERNER JOSH,
SORENSEN MORTEN,
STRÖMBERG PER
Publication year - 2011
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2010.01639.x
Subject(s) - leveraged buyout , shareholder , proxy (statistics) , private equity , equity (law) , business , finance , investment (military) , private equity firm , monetary economics , accounting , economics , corporate governance , machine learning , politics , computer science , political science , law
A long‐standing controversy is whether leveraged buyouts (LBOs) relieve managers from short‐term pressures from public shareholders, or whether LBO funds themselves sacrifice long‐term growth to boost short‐term performance. We examine one form of long‐run activity, namely, investments in innovation as measured by patenting activity. Based on 472 LBO transactions, we find no evidence that LBOs sacrifice long‐term investments. LBO firm patents are more cited (a proxy for economic importance), show no shifts in the fundamental nature of the research, and become more concentrated in important areas of companies' innovative portfolios.