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Private Equity and Investment in Innovation: Evidence from Patents
Author(s) -
Lerner Josh,
Sorensen Morten,
Stromberg Per
Publication year - 2013
Publication title -
journal of applied corporate finance
Language(s) - English
Resource type - Journals
eISSN - 1745-6622
pISSN - 1078-1196
DOI - 10.1111/jacf.12018
Subject(s) - private equity , private equity firm , originality , private equity fund , business , equity (law) , generality , club deal , investment (military) , economics , finance , public economics , management , political science , politics , creativity , law
The authors' analysis of the patenting activity of 472 companies that received private equity investments between 1986 and 2005 provides suggestive evidence of an increase in the effectiveness (though not necessarily the quantity) of their innovative activities. After such companies received private equity backing, the patents they applied for received more frequent citations than patents awarded before the involvement of PE firms. Companies acquired by private equity also show no sign of deterioration in patent “originality” and “generality,” which have been shown to be fairly reliable indicators of the fundamental nature of the research. And while there is no clear pattern of change in the level of patenting activity, corporate patent portfolios become more focused in the years after the private equity investments. The increases in our measure of patent “impact” are greatest in the areas that constitute the companies' historical core strengths. These findings are likely to prove increasingly important as private equity continues its incursions into growth areas of the economy.