Innovation in Private Equity

Abstract

Definition/Description Innovation is critical from the firm perspective as it has consequences for the long-term growth and productivity; however, it is costly investment with uncertain outcome. This entry analyzes the literature on the effects of Private Equity (PE) ownership on innovation. While PE owners restructure the target firms, their goals are typically based on short-term incentives and might cut investments in long-term projects such as innovation. The academic literature on the effects of PE owners on innovation is quite mixed. It depends on the measures used to proxy innovation, sample period used, research design, type of a PE buyout, and PE investor characteristics. Some clear trends in the effect of PE ownership on innovation emerge and I summarize them in this entry.