The impact of private equity on firms' innovation activity

Kevin Amess (), Joel Stiebale and Mike Wright

No 184, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: The paper analyses the impact of private equity (PE) backed leveraged buyouts (LBOs) on innovation output (patenting). Using a sample of 407 UK deals we find that LBOs have a positive causal effect on patent stock and quality-adjusted patent stock. Our results imply a 6% increase in quality-adjusted patent stock three years after the deal. The increase in innovation activity is concentrated among private-to-private transactions with a 14% increase in the quality-adjusted patent stock. Further analysis supports the argument that PE firms facilitate the relaxation of financial constraints. We also rule out alternative explanations for portfolio firms' higher patenting activity. Our findings suggest that PE firms do not promote short-term cost-cutting at the expense of entrepreneurial investment opportunities with a long-term payoff.

Keywords: private equity; leveraged buyout; entrepreneurial buyouts; innovation (search for similar items in EconPapers)
JEL-codes: D22 G32 G34 L26 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-ino, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:184

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