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Private Equity and Long-Run Investment: The Case of Innovation


  • Josh Lerner is with Harvard University and National Bureau of Economic Research. Morten Sorensen is with Columbia University, NBER, and SIFR. Per Strömberg is at Stockholm School of Economics, SIFR and CEPR. We thank Geraldine Kim, Jodi Krakower, Sanjey Sivanesan, and especially Sarah Woolverton for assistance with this project. The World Economic Forum and Harvard Business School's Division of Research provided financial support for this research. We are grateful for helpful comments from participants at the American Economic Association, European Finance Association, NBER Summer Institute, and Western Finance Association meetings, the World Economic Forum “Global Economic Impact of Private Equity” project, and various seminars, especially Bronwyn Hall, Laura Lindsey, Paul Oyer, Mark Schankerman, and John van Reenen. Many thanks also to Campbell Harvey (the Editor) and two anonymous referees, whose comments greatly improved the paper. All errors and omissions are our own.


A long-standing controversy is whether leveraged buyouts (LBOs) relieve managers from short-term pressures from public shareholders, or whether LBO funds themselves sacrifice long-term growth to boost short-term performance. We examine one form of long-run activity, namely, investments in innovation as measured by patenting activity. Based on 472 LBO transactions, we find no evidence that LBOs sacrifice long-term investments. LBO firm patents are more cited (a proxy for economic importance), show no shifts in the fundamental nature of the research, and become more concentrated in important areas of companies' innovative portfolios.