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==Jake==
===Lerner et al 2011===
@article{lerner2011private,
title={Private equity and long-run investment: The case of innovation},
author={Lerner, Josh and Sorensen, Morten and Str{\"o}mberg, Per},
journal={The Journal of Finance},
volume={66},
number={2},
pages={445--477},
year={2011},
publisher={Wiley Online Library},
abstract={A long-standing controversy is whether leveraged buyouts (LBOs) relieve managers from short-term pressures from public shareholders, or whether LBO funds themselves sacrifice long-term growth to boost short-term performance. We examine one form of long-run activity, namely, investments in innovation as measured by patenting activity. Based on 472 LBO transactions, we find no evidence that LBOs sacrifice long-term investments. LBO firm patents are more cited (a proxy for economic importance), show no shifts in the fundamental nature of the research, and become more concentrated in important areas of companies' innovative portfolios.},
filename={Lerner et al (2011) - Private equity and long run investment the case of innovation}
}
Finds that patents private equity backed firms applied for in the years after the investment are more frequently cited, showing no deterioration in patent orginality and generality. The level of patenting does not appear to consistently change, and the firms' patent portfolios become more focused in the years after the private equity investments. The areas where the firms concentrate their patenting after the private equity investment, and the historical strengths of the firm, tend to be the areas where the increase in patent impact is particularly great.
Data:
Capital IQ data, Dealogic data, SDC VentureXpert, and compilations of news stories to identify private equity transactions, their characteristics, and the nature of their exits. 472 LBO transactions between jan 1980 and december 2005.
Used Harvard business school patent database, which contains U.S. patent and trademark office electronic records through may 2007. HBS patent database was researched and cleaned up version of USPTO database.
Final sample consists of 6398 patents from 472 firms granted from 1984 through may 2007.
Variables:
*secondary exit - an LBO backed firm subsequently sold to another private equity fund
*IPO - an lbo backed firm subsequently going public
*trade sale - an lbo backed firm sbusequently being acquired by a strategic buyer
*bankruptcy - an lbo backed firm subsequently filing for bankruptcy
*event year - indicator variables that equal one for the given year in event time (the base year is year 0)
*post - an indicator variable that equals one for event years 1 and forward
*post plus one - an indicator variable that equals one for event years 2 and forward
*share of firm's preinvestment patents in class - the fraction of the firms' pretransaction patents that are in the same industry class
*change in firm's patents in class - an indicator for whether the difference in the share of patents in the class between the pre- and posttransaction periods is positive
*post x share - an interaction between post and share of firm's pre-investment patents in class
*post x change - an interaction between post and change in firm's patents in class
===Zahra 1995===
@article{zahra1995corporate,
title={Corporate entrepreneurship and financial performance: The case of management leveraged buyouts},
author={Zahra, Shaker A},
journal={Journal of business venturing},
volume={10},
number={3},
pages={225--247},
year={1995},
publisher={Elsevier},
abstract={Leveraged buyouts (LBOs) have created much controversy in the literature, centering on their potential effect on a company's ability to innovate, engage in new ventures, and support entrepreneurial projects. Some believe that post-LBO debt reduces the financial resources available for entrepreneurial activities. Conversely, others argue that, despite the burden of debt, some LBOs provide executives with an opportunity to innovate and take risks (Malone 1989). However, past studies have focused primarily on changes in R&D spending and ignored other corporate entrepreneurship (CE) activities a firm might pursue. Additionally, these studies have not documented the changes in CE after a management-led LBO. Thus, past studies offer only a snapshot of the effect of LBOs on CE. Finally, earlier studies did not directly examine the association between changes in entrepreneurial activities after the LBO and changes in performance.},
filename={Zahra (2015) - Corporate Entrepreneurship and Financial Performance The Case of Management Leveraged Buyouts}
}
Results from this study suggest that a company's commitment to corporate entrepreneurship (measured through innovation and venturing) increase after an LBO. Results also show that post-LBO changes in corporate entrepreneurship are associated with, or accompanied by concurrent changes in company performance.
Data:
47 LBO firms, data from annual reports, business week, compustat, dun's million dollar, interviews, commerce department publications, forbes, funk and scott, fortune, wall street journal
Data was measured with the following variables:
*Innovation
**R&D Spending
**R&D Focus (types, i.e. basic, applied, or developmental)
**radical product innovation
**product modification
**commercialization
**use of external R&D sources
**improving R&D staff quality
**increasing R&D staff size
*Venturing
**percent of revenue from new businesses or industries which showed a company's ability to expand operations to achieve profitability
**the number of new businesses the company has entered that showed an increase in the emphasis on redefining the company's business concept
**the number of new market segments served by the company that gauged the increase in the scope of operations
*company performance
**employee productivity
**sales-to-beginning assets, shows the company's ability to use its assets effectively
**return on investment
**earnings before interest and tax to assets ratio
*control variables
**technological opportunities, size, age, and level of debt
===Amess et al 2015===
@book{amess2015impact,
title={The Impact of Private Equity on Firm's Innovation Activity},
author={Amess, Kevin and Stiebale, Joel and Wright, Mike and others},
year={2015},
publisher={D{\"u}sseldorf Institute for Competition Economics (DICE)},
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.},
filename={Amess et al (2015) - The Impact of Private Equity on Firms Innovation Activity}
}
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.
Data:
Sources are the Center for Management Buyout Research, FAME, and PATSTAT. Data on PE firms and portfolio firms comes from CMBOR, which provides info on lbo deals. The FAME database provides financial and accounting data for UK firms. PATSTAT provides data on patent applications and citations in Europe. LBOs take place between 1998 and 2005. 407 UK deals.
*outcome variables
**patent applications
**patent applications weighted by forward citations i.e. changes in innovation stocks over time
*conditioning variables
**firm size (the log of sales)
**labour productivity (the log of sales per employee)
**exporting (an exporter dummy)
**skill intensity (the log of the average wage)
**debt (liabilities divided by equity, i.e. leverage)
**profitability (profit divided by sales)
**age (log firm age)
===Nadant and Perdreau 2006===
@article{le2006financial,
title={Financial profile of leveraged buy-out targets: some French evidence},
author={Le Nadant, Anne-Laure and Perdreau, Fr{\'e}d{\'e}ric},
journal={Review of Accounting and Finance},
volume={5},
number={4},
pages={370--392},
year={2006},
publisher={Emerald Group Publishing Limited},
abstract={: This paper investigates whether firms, which are taken over on the French market through Leveraged Buyouts (LBOs), possess characteristics prior to the change which differentiate them from firms which are not acquired through LBOs. Contrasting 175 LBO targets on the French market with an industry-matched comparison group, we first run univariate analysis and then multivariate analysis(logit regression). Beyond the underscoring of the LBO targets‟ financial features, we conclude that subdividing our sample according to the vendor and bidder type is beneficial. We thus notice that the so-called outperformance of LBO targets prior to the deal hides in fact different cases.}
filename={Nadant and Perdreau (2006) - Financial Profile of Leveraged Buyout Targets Some French Evidence}
}
Confirms LBO targets are less indebted and possess relatively more liquid assets than their industry counterparts. Contrary to former findings, LBO's business risk also seems to be higher than for non-LBO firms prior to the deal. Also corroborates or disagrees with some dozen other hypotheses.
Data:
List of deals collected from Zephyr database of the BvD Suite for mid 1997 to 2002 and from the french review Capital Finance for the first semester 1997 and for the year 1996. 175 deals
Variables:
Activity and performance:
*FCF/TR “Free cash flows” (1) divided by turnover
*TRGR Turnover growth
*Tax/TR Income tax divided by turnover
*ROIC Return On Invested Capital = (operating income before taxes + interest expenses) divided by “economic assets” (WCR + fixed Assets (net))
*ROE Return On Equity = Net income divided by (stockholders equity - net income)
Business Risk:
*CVTRGR Coefficient of variation of turnover growth computed on the 3 yearperiod preceding the deal
*CVROIC Coefficient of variation of ROIC computed on the 3 year-period preceding the deal
*CVROE Coefficient of variation of ROE computed on the 3 year-period preceding the deal
*CVFCF/TR Coefficient of variation of FCF/turnover computed on the 3 yearperiod preceding the deal
Composition and characteristics of assets and financial structure:
*TanA/TA Tangible assets (net) divided by total assets (net)
*LEV Total debt divided by stockholders equity
*RET/TA Retained earnings/Total assets
*NC/TA Net cash/Total assets
*WCR/TR Working Capital Requirement divided by turnover
*FA/TA Financial assets (net)/Total Assets (net)
*TA/TAg Total Assets (net)/Total assets (gross)
===Nadant and Perdreau 2015===
@article{le2015lbos,
title={LBOs' effects on innovation: evidence from France.},
author={Le nAdAnt, Anne-LAure and PerdreAu, Fr{\'e}d{\'e}ric},
journal={Management International/International Management/Gesti{\'o}n Internacional},
volume={19},
number={3},
year={2015}
abstract={Using Community Innovation Survey data
from France, we provide an empirical analysis
of the innovative efforts of a sample of
manufacturing firms that underwent a leveraged
buyout. We find no evidence that
LBOs have a negative effect on firm level
of innovation expenditure. In contrast,
results suggest that buyouts have a positive
effect on incremental innovation and that
private equity firms help to make innovation
spending more effective and even
more efficient. It could be that private
equity firms help the company to focus on
its core innovative capabilities and bring
innovative products to the market without
increasing innovation spending.}
filename={Nadant and Perdreau (2015) - LBO effects on innovation evidence from France}
}
Finds no evidence that ex-post innovation expenditure is lower for LBO targets than for comparable firms in France. Results suggest that buyouts have a positive effect on incremental innovation and that private equity firms help to make innovation spending more effective and more efficient.
Data:
Capital IQ (to isolate transactions), CIS 2006 and CIS 2004(for innovation data, community innovation surveys), DIANE (for financial statements)
1140 LBOs from Capital IQ from 1999 to 2005. Final sample reduced to 110 LBOs
Variables:
All below from Eurostat, see paper Table 5
*Product innovations
*Process innovations
*Organizational innovations
*marketing innovations
*patents and other protection methods
*factors hampering innovation activities
===Kaplan 1991===
@article{kaplan1991staying,
title={The staying power of leveraged buyouts},
author={Kaplan, Steven N},
journal={Journal of Financial Economics},
volume={29},
number={2},
pages={287--313},
year={1991},
publisher={Elsevier}
abstract={This paper documents the organizational status over time of 183 large leveraged buyouts completed between 1979 and 1986. By August 1990, 62% of the LBOs are privately owned, 14% are independent public companies, and 24% are owned by other public companies. The percentage of LBOs returning to public ownership increases over time, with LBOs remaining private for a median time of 6.82 years. The majority of LBOs, therefore, are neither short-lived nor permanent. The moderate fraction of LBO assets owned by other companies implies that asset sales play a role, but are not the primary motivating force in LBO transactions.}
filename={Kaplan (1991) - The staying power of leveraged buyouts}
}
Implications for the reasons LBOs occur and sources of value in LBO transactions. Describes characteristics, timelines, and stats of LBOs that return to public ownership.
Data:
183 large leveraged buyouts between 1979 and 1986 collected from Securities Data corporation or Morgan Stanley and Company. Post-buyout info obtained from Lotus' Datext databases, Nexis database, Wall street journal articles the year the LBO was completed, and financial reports filed with the SEC
Variables:
*number of LBO's
*total debt to total capital (book value)
*total debt to initial deal value
*interest expense to operating income
*inside equity ownership fraction
===Roden & Lewellen 1995===
@article{roden1995corporate,
title={Corporate capital structure decisions: evidence from leveraged buyouts},
author={Roden, Dianne M and Lewellen, Wilbur G},
journal={Financial Management},
pages={76--87},
year={1995},
publisher={JSTOR}
abstract={ We analyze the composition of the financing packages used in a large sample of
leveraged buyout transactions in order to test a set of hypotheses developed in
the prior literature about the determinants of corporate capital structure decisions. We
focus in particular on the role of agency costs, bankruptcy risks, and tax
considerations. We find evidence that all three have an impact, both on the degree of
leverage employed in the transactions and on the attributes of the borrowings
undertaken. The impacts are manifest in systematic relationships between the
proportion and type of debt in the buyout financing package and the target firm's
earnings rate, earnings variability, growth prospects, and its tax and liquidity position}
filename={Roden and Lewellen (1995) - Corporate Capital Structure Decisions Evidence from Leveraged Buyouts}
}
Attempts to explain why observed financing choices were made by individual firms. Identifies relationships between the characteristics of the target firms and the types of financings that were employed in their acquistion. Evidence that LBO financing decisions appear systematically to be affected by the target firm's growth prospects, the level and variability of return on its assets, its pre-buyout liquidity position, and by tax considerations and post-buyout restructuring plans.
Data:
LBOs that took place in the ten-year period from 1981 to 1990. Annual lists published in Mergers and Acquisitions. Then SEC 10k, 8k or 14D filing. More balance sheet and income statement info from COMPUSTAT and Moody's. Final sample was 107 LBOs
Variables:
*Target-firm size (SIZE)
*Target-firm liquidity (LIQUIDITY)
*Asset sales subsequent to the lbo (ASSETSALE)
*Target-firm return on assets (ROA)
*Target-firm growth opportunities (GROWTH and MRKTBOOK)
*target-firm earnings variability (EARNINGVAR)
*free cash flow ratio (FREECASH)
*acquisition premium paid (PREMIUM)
*trend variable (TIMEDUM)
Dependent variables:
*PBANKL the percentage of the total buyout financing package that is represented by senior bank debt
*PDEBTSEC: the percentage of the total package that consists of issues of junior debt securities
*PPREFER: the percentage of the total package represented by issues of preferred stock
*PCOMMON: the percentage of the total that consists of common equity provided by the buyout group
*PCASH: the percentage of the total that comes from the use of the target firm's existing cash and marketable securities balances
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=Innovation Factors/Phenomena Papers=
==James==
