Changes

This project supported [[Leveraged Buyout Innovation (Academic Paper)]] =Variable List=Jake Complete list: https://docs.google.com/a/rice.edu/spreadsheets/d/1OwcNDYXo_TefwPjUFHo5xVaBpOH4tmTnZmyBsuQRb_s/edit?usp=sharing  Abridged list: LBO factors/incidence:*Log assets*R&D*Operating income*Sales*Tax*Liquidity*ROA*ROIC*Growth*Book val per share*Earnings variability*Takeover speculation/competing bid*Tobin's Q*Industry dummies (probably 2 digit NAICS) LBO characteristics*Division or full firm?*acquisition premium*breakdown of financing package:*common equity*preferred equity*senior debt*junior debt*cash =LBO Effects on Innovation Papers=

Finds that patents private equity backed firms applied for in the years after the investment are more frequently cited, showing no deterioration in patent orginality and generality. The leve level of patenting does not appear to consistently change, and the firms' patent portfolios become more focused in the years after the private equity investments. The areas where the firms concentrate their patenting after the private equity investment, and the historical strengths of the firm, tend to be the areas where the increase in patent impact is particularly great. Data:

Capital IQ data, Dealogic data, SDC VentureXpert, and compilations of news stories to identify private equity transactions, their characteristics, and the nature of their exits. 472 LBO transactions between jan 1980 and december 2005.  Used Harvard business school patent database, which contains U.S. patent and trademark office electronic records through may 2007. HBS patent database was researched and cleaned up version of USPTO database.  Final sample consists of 6398 patents from 472 firms granted from 1984 through may 2007. Buyouts of corporate divisions are most common, followed by private-to-private deals (investments in independent unquoted entities), secondary deals (firms that were already owned by another private equity investor), then public-to-private deals Robustness Checks: *Concern one: Private equity investments for which there was already an existing investor, patents may be double-counted. Employs these patents only the first time they appear then drops them. Results are little changed*Concern two: Only measures citation count during the 3 years after the award. Using a longer window increases accuracy but decreases sample size. Repeats the analysis through the end of the second calendar year after the patent grant and exits after the fourth year and finds that results are quantitatively similar.*Concert three: In divisional buyouts corporate parents may retain best patents and only give low quality patents to the PE backed division. This may lead to an apparent increase in quality in the patents applied for after the award. Addresses this issue by using the longer window for patents above and by rerunning cross tabulations and regressions with divisional buyouts excluded from the sample. Key results are little changed by this shift. Variables: *secondary exit - an LBO backed firm subsequently sold to another private equity fund*IPO - an lbo backed firm subsequently going public*trade sale - an lbo backed firm sbusequently being acquired by a strategic buyer*bankruptcy - an lbo backed firm subsequently filing for bankruptcy *event year - indicator variables that equal one for the given year in event time (the base year is year 0)*patent applications post - an indicator variable that equals one for event years 1 and forward *post plus one - an indicator variable that equals one for event years 2 and forward *share of firm's preinvestment patents in class - the fraction of the firms' pretransaction patents that are in the same industry class*change in firm's patents in class - an indicator for whether the difference in the share of patents in the class between the pre- and posttransaction periods is positive*post x share - an interaction between post and awardsshare of firm's pre-investment patents in class*patent application date post x change - an interaction between post and grant datechange in firm's patents in class

=*Target-firm size (SIZE)*Target-firm liquidity (LIQUIDITY)*Asset sales subsequent to the lbo (ASSETSALE)*Target-firm return on assets (ROA)*Target-firm growth opportunities (GROWTH and MRKTBOOK)*target-firm earnings variability (EARNINGVAR)*free cash flow ratio (FREECASH)*acquisition premium paid (PREMIUM) *trend variable (TIMEDUM) Dependent variables: *PBANKL the percentage of the total buyout financing package that is represented by senior bank debt*PDEBTSEC: the percentage of the total package that consists of issues of junior debt securities*PPREFER: the percentage of the total package represented by issues of preferred stock*PCOMMON: the percentage of the total that consists of common equity provided by the buyout group*PCASH: the percentage of the total that comes from the use of the target firm's existing cash and marketable securities balances ===Kaplan 2009====

====Cumming et al 2007====

file = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\9ZAG35PZ\\Cumming et al. - (2007 ) - Private equity, leveraged buyouts LBOs and governance.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\75WUXVNA\\S0929119907000272.html:text/html}

 ===Annotated=== ====Lehn and Poulsen 1989====

pages = {771--787}, file = {Lehn and Poulsen (1989) - Free Cash Flow and Stockholder Gains in Going Private.pdf}

Supports Jensen's free cash flow hypothesis.

====Jensen 1988====

====Lerner 2013====   @article{lerner_private_2013, title = {Private {Equity} and {Investment} in {Innovation}: {Evidence} from {Patents}}, volume = {25}, copyright = {Copyright © 2013 Cantillon and Mann}, issn = {1745-6622}, shorttitle = {Private {Equity} and {Investment} in {Innovation}}, url = {http://onlinelibrary.wiley.com/doi/10.1111/jacf.12018/abstract}, doi = {10.1111/jacf.12018}, abstract = {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.}, language = {en}, number = {2}, urldate = {2016-06-17}, journal = {Journal of Applied Corporate Finance}, author = {Lerner, Josh and Sorensen, Morten and Stromberg, Per}, month = jun, year = {2013}, pages = {95--102}, file = {Lerner et al (2013) - Private Equity and Investment in Innovation.pdf} } Lerner et al examine the effect of private equity investment on firm innovation. This version is a summary of the previous ones. Some takeaways:*Patent citations used as proxy for quality (which might not be optimal)*They do adjust for overall average of non-LBO firms*Uses Seagate as a case study ====Artz et al 2010====  @article{artz_longitudinal_2010, title = {A {Longitudinal} {Study} of the {Impact} of {R}\&{D}, {Patents}, and {Product} {Innovation} on {Firm} {Performance}}, volume = {27}, copyright = {© 2010 Product Development \& Management Association}, issn = {1540-5885}, url = {http://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2010.00747.x/abstract}, doi = {10.1111/j.1540-5885.2010.00747.x}, abstract = {Because of increasing levels of competition and decreasing product life cycles, a firm's ability to generate a continuous stream of innovations may be more important than ever in allowing a firm to improve profitability and maintain competitive advantage This paper investigates several issues that are central to an examination of the innovation productivity in a firm. First, the relationship between a firm's commitment to research and development and its innovative outcomes is examined. Two innovative outcomes are analyzed: (1) invention, which focuses on the development of new ideas; and (2) innovation, the development of commercially viable products or services from creative ideas. Invention is measured by the number of patents granted, and innovation is assessed by the number of new product announcements. Second, because many inventions ultimately result in marketable innovations and because patents may provide protection for new products, the relationship between patents and product announcements is also investigated. Finally, the ability of a firm to benefit from its inventions and innovations is studied by examining their separate effects on firm performance, measured as return on assets (ROA) and sales growth. Drawing from a sample of 272 firms in 35 industries over 19 years, the results from a model of simultaneous equations provided support for some of the hypotheses, but several other surprising findings were found. As expected, R\&D spending was positively related to patents. This finding is consistent with others who argue that internal research capabilities, particularly those with a strong basic research component, is key to enabling a firm to generate creative outputs. More surprising was the finding of increasing returns to scale to R\&D spending. While this contradicts much of the existing research, it is consistent with economic arguments for the advantages of scale in innovation. Also interesting is the finding that, while a significant curvilinear relationship exists between R\&D spending and product announcements, it is not the predicted inverse-U but instead a U-shaped relationship. Consistent with previous work, product announcements were found to be positively related to both performance measures. A negative relationship was found between patents and both ROA and sales growth. While these findings were unexpected, they are intriguing and call into question the value of patents as protection mechanisms. In addition, these results may be resulting from the rise of strategic patenting, where an increasing number of firms are using patents as strategic weapons. As expected, a positive relationship was found between patents and new product announcements.}, language = {en}, number = {5}, urldate = {2016-06-17}, journal = {Journal of Product Innovation Management}, author = {Artz, Kendall W. and Norman, Patricia M. and Hatfield, Donald E. and Cardinal, Laura B.}, month = sep, year = {2010}, pages = {725--740}, file = {Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\KUT8ZJRF\\Artz et al. - 2010 - A Longitudinal Study of the Impact of R&D, Patents.pdf:application/pdf;Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\2DHHBRNG\\abstract.html:text/html} } Uses COMPUSTAT data 1984 to 2004 to analyze relationship between firm performance and R&D/innovative activity. *Measures innovative activity with patents and new product announcements. *Measures firm performance with after tax ROA, sales growth 3-year moving average.*Argues for increasing returns to scale in R&D spending. *Also claims patents are negatively related to growth in this sample. *Controls for year and industry (but not firm size, since it is correlated with R&D spending).  ====Axelson 2013====  @article{axelson_borrow_2013, title = {Borrow {Cheap}, {Buy} {High}? {The} {Determinants} of {Leverage} and {Pricing} in {Buyouts}}, volume = {68}, issn = {1540-6261}, shorttitle = {Borrow {Cheap}, {Buy} {High}?}, url = {http://onlinelibrary.wiley.com/doi/10.1111/jofi.12082/abstract}, doi = {10.1111/jofi.12082}, abstract = {Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, international sample of buyouts from 1980 to 2008, we find that buyout leverage is unrelated to the cross-sectional factors, suggested by traditional capital structure theories, that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.}, language = {en}, number = {6}, urldate = {2016-06-17}, journal = {The Journal of Finance}, author = {Axelson, Ulf and Jenkinson, Tim and Strömberg, Per and Weisbach, Michael S.}, month = dec, year = {2013}, pages = {2223--2267}, file = {Axelson et al (2013) - Determinants of Leverage and Pricing.pdf} }Discusses financing and pricing of LBOs. Only tangentially relevant to our project. ====Hitt 1991====  @article{hitt_effects_1991, title = {Effects of {Acquisitions} on {R}\&{D} {Inputs} and {Outputs}}, volume = {34}, issn = {0001-4273}, url = {http://www.jstor.org/stable/256412}, doi = {10.2307/256412}, abstract = {Making acquisitions, although a popular strategy, may not always lead to positive firm performance. Researchers have offered several explanations for this relationship. One is that acquisitions lead to lower investments in R\&D and curtail the championing process whereby organization members internally promote new products and processes in firms. The current research found that acquisitions had negative effects on "R\&D intensity" and "patent intensity."}, number = {3}, urldate = {2016-06-17}, journal = {The Academy of Management Journal}, author = {Hitt, Michael A. and Hoskisson, Robert E. and Ireland, R. Duane and Harrison, Jeffrey S.}, year = {1991}, pages = {693--706}, file = {Hitt et al (1991) - Effects of Acquisitions on RD.pdf} } Hitt et al argue that acquisitions are substitutes for R&D/patents and other investments. We should keep this in mind when using these as regressors in the same equation. ====Weir 2005====

====Opler and Titman 1993====

==LBO Duration=Unsorted====Kaplan 1991=== @article{kaplan1991staying, title={The staying power of leveraged buyouts}, author={Kaplan, Steven N}, journal={Journal of Financial Economics}, volume={29}, number={2}, pages={287--313}, year={1991}, publisher={Elsevier} abstract={This paper documents the organizational status over time of 183 large leveraged buyouts completed between 1979 and 1986. By August 1990, 62% of the LBOs are privately owned, 14% are independent public companies, and 24% are owned by other public companies. The percentage of LBOs returning to public ownership increases over time, with LBOs remaining private for a median time of 6.82 years. The majority of LBOs, therefore, are neither short-lived nor permanent. The moderate fraction of LBO assets owned by other companies implies that asset sales play a role, but are not the primary motivating force in LBO transactions.} filename={Kaplan (1991) - The staying power of leveraged buyouts} }Implications for the reasons LBOs occur and sources of value in LBO transactions. Describes characteristics, timelines, and stats of LBOs that return to public ownership. Data: 183 large leveraged buyouts between 1979 and 1986 collected from Securities Data corporation or Morgan Stanley and Company. Post-buyout info obtained from Lotus' Datext databases, Nexis database, Wall street journal articles the year the LBO was completed, and financial reports filed with the SEC Variables: *number of LBO's *total debt to total capital (book value)*total debt to initial deal value*interest expense to operating income*inside equity ownership fraction ===Van de Gucht 1998===  @article{van_de_gucht_predicting_1998, title = {Predicting the duration and reversal probability of leveraged buyouts}, volume = {5}, issn = {0927-5398}, url = {http://www.sciencedirect.com/science/article/pii/S0927539897000236}, doi = {10.1016/S0927-5398(97)00023-6}, abstract = {We examine the probability that a firm will return to public status following a leveraged buyout (LBO) transaction and for those LBOs that will eventually reverse, we examine the factors that impact the timing of the reversal. These two dimensions of the reversal decision are studied by estimating standard and split population hazard models for a sample of 343 LBO transactions. Our results indicate that not all LBO firms eventually will reverse, i.e. the net benefits of private status for some firms appear to be permanent. For those LBOs that will reverse, reversal probabilities are found to increase over the first seven or eight years following a typical LBO, then to decline thereafter.}, number = {4}, urldate = {2016-06-17}, journal = {Journal of Empirical Finance}, author = {Van de Gucht, Linda M. and Moore, William T.}, month = oct, year = {1998}, pages = {299--315}, file = {Van de Gucht and Moore (1998) - Predicting duration and reversal prob of LBOs.pdf} } Van de Gucht and Moore find that hazard rate of LBO reversals peaks at about 7 to 8 years after the buyout.  Data:*343 LBO transactions $100 million+ (1980-1992) Securities Data Corporation*Restricted to those with stock returns in CRSP in year before LBO, post-LBO status identifiable in Newspaper Abstracts or Ward's Business Directory (1994) Variables:*Full LBO*Size*Industry Q*R&D/Sales =Innovation Factors/Phenomena Papers====Artz et al 2010===  @article{artz_longitudinal_2010, title = {A {Longitudinal} {Study} of the {Impact} of {R}\&{D}, {Patents}, and {Product} {Innovation} on {Firm} {Performance}}, volume = {27}, copyright = {© 2010 Product Development \& Management Association}, issn = {1540-5885}, url = {http://onlinelibrary.wiley.com/doi/10.1111/j.1540-5885.2010.00747.x/abstract}, doi = {10.1111/j.1540-5885.2010.00747.x}, abstract = {Because of increasing levels of competition and decreasing product life cycles, a firm's ability to generate a continuous stream of innovations may be more important than ever in allowing a firm to improve profitability and maintain competitive advantage This paper investigates several issues that are central to an examination of the innovation productivity in a firm. First, the relationship between a firm's commitment to research and development and its innovative outcomes is examined. Two innovative outcomes are analyzed: (1) invention, which focuses on the development of new ideas; and (2) innovation, the development of commercially viable products or services from creative ideas. Invention is measured by the number of patents granted, and innovation is assessed by the number of new product announcements. Second, because many inventions ultimately result in marketable innovations and because patents may provide protection for new products, the relationship between patents and product announcements is also investigated. Finally, the ability of a firm to benefit from its inventions and innovations is studied by examining their separate effects on firm performance, measured as return on assets (ROA) and sales growth. Drawing from a sample of 272 firms in 35 industries over 19 years, the results from a model of simultaneous equations provided support for some of the hypotheses, but several other surprising findings were found. As expected, R\&D spending was positively related to patents. This finding is consistent with others who argue that internal research capabilities, particularly those with a strong basic research component, is key to enabling a firm to generate creative outputs. More surprising was the finding of increasing returns to scale to R\&D spending. While this contradicts much of the existing research, it is consistent with economic arguments for the advantages of scale in innovation. Also interesting is the finding that, while a significant curvilinear relationship exists between R\&D spending and product announcements, it is not the predicted inverse-U but instead a U-shaped relationship. Consistent with previous work, product announcements were found to be positively related to both performance measures. A negative relationship was found between patents and both ROA and sales growth. While these findings were unexpected, they are intriguing and call into question the value of patents as protection mechanisms. In addition, these results may be resulting from the rise of strategic patenting, where an increasing number of firms are using patents as strategic weapons. As expected, a positive relationship was found between patents and new product announcements.}, language = {en}, number = {5}, urldate = {2016-06-17}, journal = {Journal of Product Innovation Management}, author = {Artz, Kendall W. and Norman, Patricia M. and Hatfield, Donald E. and Cardinal, Laura B.}, month = sep, year = {2010}, pages = {725--740}, file = {Artz et al (2010) - Impact of RD Patents and Innovation on Firm Performances.pdf} }Analyzes relationship between firm performance and R&D/innovative activity. *Argues for increasing returns to scale in R&D spending. *Also claims patents are negatively related to growth in this sample.  Data:*272 firms for 19 one-year periods *COMPUSTAT 1984 to 2004, NBER Patent Citation Data Files (2001), Patents BIB, new product announcements from Factivia (cross-checked with F&S Predicast) Variables:*Measures innovative activity with patents and new product announcements. *Measures firm performance with after tax ROA, sales growth 3-year moving average.*Controls for year and industry (two digit SIC code)*Does not control for firm size, since it is correlated with R&D spending.

===Hitt 1991===  @article{hitt_effects_1991, title = {Effects of {Acquisitions} on {R}\&{D} {Inputs} and {Outputs}}, volume = {34}, issn = {0001-4273}, url = {http://www.jstor.org/stable/256412}, doi = {10.2307/256412}, abstract = {Making acquisitions, although a popular strategy, may not always lead to positive firm performance. Researchers have offered several explanations for this relationship. One is that acquisitions lead to lower investments in R\&D and curtail the championing process whereby organization members internally promote new products and processes in firms. The current research found that acquisitions had negative effects on "R\&D intensity" and "patent intensity."}, number = {3}, urldate = {2016-06-17}, journal = {The Academy of Management Journal}, author = {Hitt, Michael A. and Hoskisson, Robert E. and Ireland, R. Duane and Harrison, Jeffrey S.}, year = {1991}, pages = {693--706}, file = {Hitt et al (1991) - Effects of Acquisitions on RD.pdf} } Hitt et al argue that acquisitions are substitutes for R&D/patents and other investments. We should keep this in mind when using these as regressors in the same equation. ===Hagedoorn 2003====

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