Entrepreneurial Exits and Innovation

40 Pages Posted: 5 Aug 2013

See all articles by Vikas A. Aggarwal

Vikas A. Aggarwal

INSEAD - Entrepreneurship and Family Enterprise

David H. Hsu

University of Pennsylvania - Management Department

Date Written: August 5, 2013


We examine how IPOs and acquisitions affect entrepreneurial innovation as measured by patent counts and forward patent citations. We construct a firm-year panel dataset of all venture capital-backed biotechnology firms founded between 198'22'008 tracked yearly through 2006. We address the possibility of unobserved self-selection into exit mode by using coarsened exact matching (CEM), and in two additional ways: (1) comparing firms that filed for an IPO (or announced a merger) with those not completing the transaction for reasons unrelated to innovation, and (2) using an instrumental variables approach. We find that innovation quality is highest under private ownership and lowest under public ownership, with acquisition intermediate between the two. Together with a set of within-exit mode analyses, these results are consistent with the proposition that information confidentiality mechanisms shape innovation outcomes. The results are not explained by inventor-level turnover following exit events or by firms’ pre-exit window dressing behavior.

Keywords: Entrepreneurial Exits, Innovation, Information Confidentiality

Suggested Citation

Aggarwal, Vikas A. and Hsu, David H., Entrepreneurial Exits and Innovation (August 5, 2013). INSEAD Working Paper No. 2013/89/EFE/ACGRE, Available at SSRN: https://ssrn.com/abstract=2306053 or http://dx.doi.org/10.2139/ssrn.2306053

Vikas A. Aggarwal (Contact Author)

INSEAD - Entrepreneurship and Family Enterprise ( email )

F-77305 Fontainebleau Cedex

David H. Hsu

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-746-0125 (Phone)
215-898-0401 (Fax)

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