Do Private Equity Firms Foster Innovation? Evidence from French LBOs

Anne-Laure Le Nadant and Frédéric Perdreau
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Frédéric Perdreau: University of St-Etienne, COACTIS, EA 4161

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

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.

Keywords: Buyouts; Innovation; Private Equity Firms; Strategic Entrepreneurship (search for similar items in EconPapers)
JEL-codes: G24 G34 O30 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-ent, nep-ino and nep-sbm
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Working Paper: Do Private Equity Firms Foster Innovation? Evidence from French LBOs (2011)
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