Public-to-Private Buyouts and Innovation

Douglas Cumming; Rejo Peter; Monika Tarsalewska

doi:10.1111/1467-8551.12404

Public-to-Private Buyouts and Innovation

Douglas Cumming, Rejo Peter, Monika Tarsalewska^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

11 Citations (Scopus)

Abstract

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 post-buyout. We rule out some alternative explanations for these findings, including but not limited to outliers, truncation bias and endogeneity.

Original language	English
Pages (from-to)	811-829
Number of pages	19
Journal	British Journal of Management
Volume	31
Issue number	4
DOIs	https://doi.org/10.1111/1467-8551.12404
Publication status	Published - 1 Oct 2020

Bibliographical note

Funding Information:
We thank Wassim Ahmad, Cem Demiroglu, Lora Dimitrova, Ioannis Floros, Grzegorz Trojanowski, anonymous conference referees and participants at the Manchester Annual Corporate Finance Conference, INFINITY, FMA Europe and USA, and FMARC for comments and suggestions. We are also grateful to seminar participants at University of Exeter, University of Bath, University of Bergamo, University of Birmingham, University of Central Florida, University of Kent, Florida Atlantic University, University of Chile and National Bank of Poland. Monika Tarsalewska acknowledges funding from the European Union's Horizon 2020 research and innovation programme under the Marie Sklodowska‐Curie Grant Agreement No. 665778 and National Science Center, Poland 2016/23/P/HS4/04032 POLONEZ. This paper was under review over a year before Douglas Cumming assumed the Editor‐in‐Chief role, and went through three rounds of revisions.

Publisher Copyright:
© 2020 The Authors. British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management

ASJC Scopus subject areas

General Business,Management and Accounting
Strategy and Management
Management of Technology and Innovation

Access to Document

10.1111/1467-8551.12404

Best Paper Award for Public to Private Buyouts and Innovation
Cumming, D. (Recipient), 2019
Prize: Prize (including medals and awards)

Cite this

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Public-to-Private Buyouts and Innovation

Abstract

Bibliographical note

ASJC Scopus subject areas

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Prizes

Best Paper Award for Public to Private Buyouts and Innovation

Cite this