Assessing the contribution to innovation of private equity investors: A study on European buyouts

The paper provides an empirical analysis of the patenting activity of a sample of Western European manufacturing firms undergoing a buyout between 1998 and 2004. A panel data design is used to test whether the characteristics of the deal and of private equity (PE) firms can affect acquired companies’ subsequent innovation effort as measured by the number of patents granted by the EPO. Results support the view that the innovation activity of portfolio firms is affected by different types of investors, pursuing different objectives and differing in their risk propensity, expected returns and investment policies. The characteristics of lead investors (size, stage specialization, geographical location) and of the deal (amount invested, presence of multiple investors) are also investigated and are found to differently affect the post-buyout innovation activity of sample firms.