Does Private Equity Investment Spur Innovation? Evidence from Europe

48 Pages Posted: 19 Jun 2009

See all articles by Alexander A. Popov

Alexander A. Popov

European Central Bank (ECB)

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Date Written: June 15, 2009

Abstract

We provide the first cross-country evidence of the effect of investment by private equity firms on innovation, focusing on a sample of European countries and using Kortum and Lerner’s (2000) empirical methodology. Using an 18-country panel covering the period 1991-2004, we study how private equity finance affects patent applications and patent grants. We address concerns about causality in several ways, including exploiting variation in laws regulating the investment behaviour of pension funds and insurance companies across countries and over time. We also control for the standard determinants of innovation like R&D, human capital, and patent protection. Our estimates imply that while private equity investment accounts for 8% of aggregate (private equity plus R&D) industrial spending, PE accounts for as much as 12% of industrial innovation. We also present similar evidence from the biotech industry to alleviate concerns that our results are biased by aggregation.

Keywords: private equity, venture capital, innovation

JEL Classification: C23, G15, O16

Suggested Citation

Popov, Alexander A. and Roosenboom, Peter, Does Private Equity Investment Spur Innovation? Evidence from Europe (June 15, 2009). ECB Working Paper No. 1063, Available at SSRN: https://ssrn.com/abstract=1414208

Alexander A. Popov (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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