We study the effect of public-to-private buyout transactions on investments in innovation using
an international sample 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 ...
We study the effect of public-to-private buyout transactions on investments in innovation using
an international sample 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 in 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. This suggests that only
institutional buyouts 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 most prevalent for
transactions where the cost of the deal’s debt financing is higher than that of the debt postbuyout. We rule out some alternative explanations for these findings, including but not limited
to outliers, truncation bias, and endogeneity.