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Jake Josh Lerner Private Equity and Long-Run Investment: The Case of Innovation Corporate entrepreneurship and financial performance: The case of management leveraged buyouts The impact of private equity on firms' innovation activity LBO's effects on innovation evidence from france



Lerner 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 = {},
       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

       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 = {},
       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}

Axelson 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 = {},
       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 = {Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\F3NMADJX\\Axelson et al. - 2013 - Borrow Cheap, Buy High The Determinants of Levera.pdf:application/pdf;Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\Z7J2WPP8\\abstract.html:text/html}

Hitt 1991

       title = {Effects of {Acquisitions} on {R}\&{D} {Inputs} and {Outputs}},
       volume = {34},
       issn = {0001-4273},
       url = {},
       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}

Weir 2005

       title = {Incentive {Effects}, {Monitoring} {Mechanisms} and the {Market} for {Corporate} {Control}: {An} {Analysis} of the {Factors} {Affecting} {Public} to {Private} {Transactions} in the {UK}},
       volume = {32},
       issn = {1468-5957},
       shorttitle = {Incentive {Effects}, {Monitoring} {Mechanisms} and the {Market} for {Corporate} {Control}},
       url = {},
       doi = {10.1111/j.0306-686X.2005.00617.x},
       abstract = {Abstract:  This paper investigates the factors that influence the decision to change the status of a publicly quoted company to that of a private company. We find that firms that go private are more likely to have higher CEO ownership and higher institutional ownership. In relation to their board structures, firms going private tend to have more duality but there is no statistical difference in the proportion of non-executive directors. They do not show signs of having excess free cash flows but there is some evidence of lower growth opportunities. We do not find that firms going private experience a greater threat of hostile acquisition. The results are therefore consistent with incentive and monitoring explanations of going private. Calculation of the probability of going private shows that incentive effects are stronger than the monitoring effects.},
       language = {en},
       number = {5-6},
       urldate = {2016-06-17},
       journal = {Journal of Business Finance \& Accounting},
       author = {Weir, Charlie and Laing, David and Wright, Mike},
       month = jun,
       year = {2005},
       keywords = {incentives, market for corporate control, monitoring, public to private transactions},
       pages = {909--943},
       file = {Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\WWSDS5U9\\Weir et al. - 2005 - Incentive Effects, Monitoring Mechanisms and the M.pdf:application/pdf;Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\DGZPZ4RP\\abstract.html:text/html}

Kaplan 2009

       title = {Leveraged {Buyouts} and {Private} {Equity}},
       volume = {23},
       issn = {0895-3309},
       url = {},
       doi = {10.1257/jep.23.1.121},
       abstract = {In a leveraged buyout, a company is acquired by a specialized investment firm using a relatively small portion of equity and a relatively large portion of outside debt financing. The leveraged buyout investment firms today refer to themselves (and are generally referred to) as private equity firms. We describe and present time series evidence on the private equity industry, considering both firms and transactions.  We discuss the existing empirical evidence on the economics of the firms and transactions.  We consider similarities and differences between the recent private equity wave and the wave of the 1980s.  Finally, we speculate on what the evidence implies for the future of private equity.},
       number = {1},
       urldate = {2016-06-17},
       journal = {Journal of Economic Perspectives},
       author = {Kaplan, Steven N. and Stromberg, Per},
       month = mar,
       year = {2009},
       pages = {121--146},
       file = {Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\KNZ9DRBG\\Kaplan and Stromberg - 2009 - Leveraged Buyouts and Private Equity.pdf:application/pdf;Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\E5EHNV2E\\articles.html:text/html}

hagedoorn 2003

       title = {Measuring innovative performance: is there an advantage in using multiple indicators?},
       volume = {32},
       issn = {0048-7333},
       shorttitle = {Measuring innovative performance},
       doi = {10.1016/S0048-7333(02)00137-3},
       abstract = {The innovative performance of companies has been studied quite extensively and for a long period of time. However, the results of many studies have not yet led to a generally accepted indicator of innovative performance or a common set of indicators. So far the variety in terms of constructs, measurements, samples, industries and countries has been substantial. This paper studies the innovative performance of a large international sample of nearly 1200 companies in four high-tech industries, using a variety of indicators. These indicators range from R\&D inputs, patent counts and patent citations to new product announcements. The study establishes that a composite construct based on these four indicators clearly catches a latent variable 'innovative performance'. However, our findings also suggest that the statistical overlap between these indicators is that strong that future research might also consider using any of these indicators to measure the innovative performance of companies in high-tech industries. (C) 2002 Elsevier Science B.V. All rights reserved.},
       language = {English},
       number = {8},
       journal = {Research Policy},
       author = {Hagedoorn, J. and Cloodt, M.},
       month = sep,
       year = {2003},
       note = {WOS:000184881000006},
       keywords = {acquisitions, exploration, firm level, high-tech industries, impact, industry, innovative performance, inventions, patent citations, patents, research-and-development, spillovers, technology},
       pages = {1365--1379}

Cloodt et al 2006

       title = {Mergers and acquisitions: {Their} effect on the innovative performance of companies in high-tech industries},
       volume = {35},
       issn = {0048-7333},
       shorttitle = {Mergers and acquisitions},
       url = {},
       doi = {10.1016/j.respol.2006.02.007},
       abstract = {This study examines the post-M\&A innovative performance of acquiring firms in four major high-tech sectors. Non-technological M\&As appear to have a negative impact on the acquiring firm's post-M\&A innovative performance. With respect to technological M\&As, a large relative size of the acquired knowledge base reduces the innovative performance of the acquiring firm. The absolute size of the acquired knowledge base only has a positive effect during the first couple of years after which the effect turns around and we see a negative effect on the innovative performance of the acquiring firm. The relatedness between the acquired and acquiring firms’ knowledge bases has a curvilinear impact on the acquiring firm's innovative performance. This indicates that companies should target M\&A ‘partners’ that are neither too unrelated nor too similar in terms of their knowledge base.},
       number = {5},
       urldate = {2016-06-17},
       journal = {Research Policy},
       author = {Cloodt, Myriam and Hagedoorn, John and Van Kranenburg, Hans},
       month = jun,
       year = {2006},
       keywords = {high-tech industries, innovative performance, M\&As},
       pages = {642--654},
       file = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\SEU8CIRN\\Cloodt et al. - 2006 - Mergers and acquisitions Their effect on the inno.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\RDJIG292\\S004873330600045X.html:text/html}

Van de Gucht 1998

       title = {Predicting the duration and reversal probability of leveraged buyouts},
       volume = {5},
       issn = {0927-5398},
       url = {},
       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 = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\CCNSKDXX\\Van de Gucht and Moore - 1998 - Predicting the duration and reversal probability o.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\2IA32N4Q\\S0927539897000236.html:text/html}

Cumming et al 2007

       series = {Private {Equity}, {Leveraged} {Buyouts} and {Corporate} {Governance}},
       title = {Private equity, leveraged buyouts and governance},
       volume = {13},
       issn = {0929-1199},
       url = {},
       doi = {10.1016/j.jcorpfin.2007.04.008},
       abstract = {This paper provides an overview of the literature on private equity and leveraged buyouts, focusing on global evidence related to both governance and returns to private equity and leveraged buyouts. We distinguish between financial and real returns to this activity, where the latter refers to productivity and broader performance measures. We also outline a research agenda on this topic.},
       number = {4},
       urldate = {2016-06-17},
       journal = {Journal of Corporate Finance},
       author = {Cumming, Douglas and Siegel, Donald S. and Wright, Mike},
       month = sep,
       year = {2007},
       keywords = {Corporate governance, Financial and real returns, Management buyouts, Private equity, Total factor productivity},
       pages = {439--460},
       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 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}

Jensen 1988

       title = {Takeovers: {Their} {Causes} and {Consequences}},
       volume = {2},
       issn = {0895-3309},
       shorttitle = {Takeovers},
       url = {},
       number = {1},
       urldate = {2016-06-17},
       journal = {The Journal of Economic Perspectives},
       author = {Jensen, Michael C.},
       year = {1988},
       pages = {21--48}

Opler and Titman 1993

       title = {The {Determinants} of {Leveraged} {Buyout} {Activity}: {Free} {Cash} {Flow} vs. {Financial} {Distress} {Costs}},
       volume = {48},
       issn = {00221082},
       shorttitle = {The {Determinants} of {Leveraged} {Buyout} {Activity}},
       url = {},
       doi = {10.1111/%28ISSN%291540-6261/issues},
       abstract = {This paper investigates the determinants of leveraged buyout activity by comparing firms that have implemented leveraged buyouts to those that have not. Consistent with the free cash flow theory, the authors find that firms that initiate leveraged buyouts can be characterized as having a combination of unfavorable investment opportunities (low Tobin's q) and relatively high cash flow. Leveraged buyout firms also tend to be more diversified than firms that do not undertake leveraged buyouts. In addition, firms with high expected costs of financial distress (e.g, those with high research and development expenditures) are less likely to do leveraged buyouts.},
       number = {5},
       urldate = {2016-06-17},
       journal = {Journal of Finance},
       author = {Opler, Tim and Titman, Sheridan},
       month = dec,
       year = {1993},
       keywords = {Capital and Ownership Structure, Financial Risk and Risk Management, Financing Policy, Goodwill          G32, Value of Firms},
       pages = {1985--1999},
       file = {EBSCO Full Text:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\4X7HDN66\\Opler and Titman - 1993 - The Determinants of Leveraged Buyout Activity Fre.pdf:application/pdf}

Berg and Gottschalg 2005

       title = {Understanding value generation in buyouts},
       volume = {02},
       issn = {0219-869X},
       url = {},
       doi = {10.1142/S0219869X05000221},
       abstract = {Buyouts have been described as a specific form of financial acquisition that leads to potentially substantial, but also highly volatile returns to equity investors. Previous research has illustrated a number of mechanisms through which buyouts cause increases or decreases in company value. Besides the traditional mechanisms like improved governance or incentive systems, more innovative and entrepreneurial levers like increasing strategic distinctiveness and mentoring are examined. While it is important to understand the performance impact of each of these levers individually, we are still missing a comprehensive framework that captures the full complexity of the buyout value generation process and recognizes interdependences between various factors. In this paper, we develop a three-dimensional conceptual framework for value generation in buyouts that categorizes and links the different levers of buyouts value generation. This framework provides the basis to take a look beyond individual value levers and sheds light on the underlying strategic logic of buyouts. We then review the literature on buyouts and categorize previously identified levers of value generation according to our framework. At the same time, we identify a number of levers that have received little attention in the academic literature so far or still lack convincing empirical support for their performance impact. Building upon this assessment of the status quo in research in buyout value generation, we outline an agenda for future research.},
       number = {01},
       urldate = {2016-06-17},
       journal = {Journal of Restructuring Finance},
       author = {Berg, Achim and Gottschalg, Oliver F.},
       month = mar,
       year = {2005},
       pages = {9--37},
       file = {Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\P9BC7B8C\\S0219869X05000221.html:text/html}

Malmendier and Tate 2008

       title = {Who makes acquisitions? {CEO} overconfidence and the market's reaction},
       volume = {89},
       issn = {0304-405X},
       shorttitle = {Who makes acquisitions?},
       doi = {10.1016/j.jfineco.2007.07.002},
       abstract = {Does CEO overconfidence help to explain merger decisions? Overconfident CEOs overestimate their ability to generate returns. As a result, they overpay for target companies and undertake value-destroying mergers. The effects are strongest if they have access to internal financing. We test these predictions using two proxies for overconfidence: CEOs' personal over-investment in their company and their press portrayal. We find that the odds of making an acquisition are 65\% higher if the CEO is classified as overconfident. The effect is largest if the merger is diversifying and does not require external financing. The market reaction at merger announcement (-90 basis points) is significantly more negative than for non-overconfident CEOs (-12 basis points). We consider alternative interpretations including inside information, signaling, and risk tolerance. (C) 2008 Elsevier B.V. All rights reserved.},
       language = {English},
       number = {1},
       journal = {Journal of Financial Economics},
       author = {Malmendier, Ulrike and Tate, Geoffrey},
       month = jul,
       year = {2008},
       note = {WOS:000258567000002},
       keywords = {cash flow, corporate diversification, diversification destroy value, firm, hubris, managerial biases, mergers and acquisitions, merger wave, overconfidence, returns, returns to mergers, stock-options, takeovers, tender offers, tobins-q},
       pages = {20--43}