Public-to-Private Buyouts and Innovation
We study the eﬀect of public-to-private buyout transactions on investments in innovation using an international sample from thirty-six countries over the 1997-2017 period. We use patent counts and citations to proxy for the quantity, quality, and economic importance of innovation. Our results are based on time analysis and matched sample regressions. The data indicate that buyouts are associated with a signiﬁcant reduction in patents and patent citations, including a reduction of radical (i.e., more scientiﬁc) patents. When we split the sample into institutional and management buyouts, the negative eﬀect of buyouts is conﬁrmed only for institutional buyouts, suggesting that highly leveraged transactions prevent target ﬁrms from adopting long-term investments. This ﬁnding is conﬁrmed by reductions in innovator employment and innovation eﬃciency subsequent to going private. Moreover, the data indicate that the negative eﬀect is mostly prevalent for transactions where the cost of the deal’s debt ﬁnancing is higher than the post-buyout cost of the debt. For deals ﬁnanced only with private equity, this eﬀect is aggravated in the post-2006 period, suggesting that the nature of deals has worsened innovation over time. We rule out alternative explanations for these ﬁndings, including but not limited to outliers, truncation bias, and endogeneity.