Private Equity and Innovation: Evidence from Sweden

Sammanfattning: Whether private equity owners create long-term value or if these investors neglect investing for the longer run in order to boost short-term returns has for long been a widely debated topic. This paper aims to investigate how long-run investments in innovation are impacted by LBO transactions on the Swedish market. We examine investments in innovation as measured by patents on a sample of 87 Swedish firms which have been private equity owned some time in the period between 1994 and 2019. More specifically, we investigate how the quality of patents, the number of patents applied for and the productivity of innovation activities evolve in the period surrounding an LBO transaction. Our findings suggest that both the quality and the number of patents applied for by Swedish firms that undergo an LBO transaction seems to decrease in the period following the transaction, however the statistical significance in these tests is low. When extending our analysis to consider what the underlying cause of these potential shifts might be we find that the yield on investments in R&D, as measured by the number of patents applied for and the quality of those patents relative to the R&D expenditure, decreases significantly in the period following the LBO transaction. This suggests that the way in which private equity owners on the Swedish market undertake long-run investments might be different, and perhaps less productive, compared to non-private equity owners.