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abstract={The paper analyses the impact of private equity (PE) backed leveraged buyouts (LBOs) on innovation output (patenting). Using a sample of 407 UK deals we find that LBOs have a positive causal effect on patent stock and quality-adjusted patent stock. Our results imply a 6% increase in quality-adjusted patent stock three years after the deal. The increase in innovation activity is concentrated among private-to-private transactions with a 14% increase in the quality-adjusted patent stock. Further analysis supports the argument that PE firms facilitate the relaxation of financial constraints. We also rule out alternative explanations for portfolio firms’ higher patenting activity. Our findings suggest that PE firms do not promote short-term cost-cutting at the expense of entrepreneurial investment opportunities with a long-term payoff.},

The results show that PE-backed LBOs have a positive causal effect on both patenting and quality-adjusted patents measured by forward citations. This implies an increase in innovation activity rather than an increase in strategic patenting. The impact is predominantly driven by private to private LBO transactions. The findings are consistent with PE firm involvement relaxing financial constraints in firms, facilitating their investment in innovation activity.