LBOs, debt and R&amp;D intensity

Long, William F.; Ravenscraft, David J.

doi:10.1002/smj.4250140910

Cited by 186 publications

(85 citation statements)

References 36 publications

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“…The agency theory perspective underpinning this claim proposes m anagers are motivated to seek 'efficiencies' because tighter financial monitoring and control limits their discretion and makes them more accountable to investors after the buy-out (Jensen, 1986;Long and Ravenscraft, 1993;Phillips, 1995). In addition, discretionary expenditure by managers is limited following a buy-out as cash flow is used to service interest payments on high leverage (Jensen, 1986).…”

Section: Buy-outs: Opportunities For Changementioning

confidence: 99%

The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands

Bruining¹,

Boselie²,

Wright³

et al. 2005

The International Journal of Human Resource Management

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A buy-out is a fundamental change in the structure of ownership that may affect the way employee relations develop within an organisation. Little is known about the impact of buyouts upon employee relations. This paper aims to address this gap. We focus on two main questions. First, what are the effects of a buy-out on employee relations in an organisation? Second, does the national institutional context affect the impact of buy-outs on employee relations? The paper reports changes to employee relations in buy-outs in the contrasting institutional environments of the UK and the Netherlands. Overall, we find that buy-outs positively affect HR practices with increases in training, employee involvement, the number of employees and pay levels. The positive effects appear to be significantly stronger in a less institutionalised environment like the UK than the more institutionalised environment of the Netherlands. Buy-outs raised HRM practices in the UK to a level closer although still below that of Dutch buy-outs. Second, does the national institutional context affect the impact of buy-outs on employee relations? The paper reports changes to employee relations in buy-outs in the contrasting institutional environments of the UK and the Netherlands. Overall, we find that buy-outs positively affect HR practices with increases in training, employee involvement, the number of employees and pay levels. The positive effects appear to be significantly stronger in a less institutionalised environment like the UK than the more institutionalised environment of the Netherlands. Buy-outs raised HRM practices in the UK to a level closer although still below that of Dutch buy-outs.

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Section: Buy-outs: Opportunities For Changementioning

confidence: 99%

The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands

Bruining¹,

Boselie²,

Wright³

et al. 2005

The International Journal of Human Resource Management

View full text Add to dashboard Cite

show abstract

“…Some prior studies have examined R&D expenditure (e.g. Lichtenberg and Siegel, 1990;Long and Ravenscraft, 1993); however, it is a problematic measure of innovative activity because it is unable to distinguish between productive and unproductive expenditure. Evidence suggests that LBO firms make more productive use of R&D expenditure by improving product development and the commercialization of technology (Zahra, 1995).…”

Section: Introductionmentioning

confidence: 99%

The impact of private equity on firms׳ patenting activity

Amess

Stiebale²,

Wright

2016

European Economic Review

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The paper analyses the impact of private equity (PE) backed leveraged buyouts (LBOs) on innovative 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 innovative activity is concentrated among private-to-private transactions with a 14% increase in the quality-adjusted patent stock. We also find evidence suggesting that PE firms facilitate the relaxation of financial constraints. In sum, our findings suggest that PE firms do not promote short-term cost-cutting at the expense of entrepreneurial investment opportunities with a long-term pay-off.JEL Classification: D22, G32, G34, L26

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“…At the same time, internal financial resources are affected by the firms' debt payment obligations. The higher the obligations relative to the internal funds of the firm, the less liquidity remains for activities that have to be financed internally such as R&D. Thus, increases in firms' levels of debt may put pressure on the firm to use its cash flow to service interest and repayment at the expense of long-term investments such as R&D (Hall 1990, Long and Ravenscraft 1993, Bhagat and Welch 1995, Ogawa 2007. Moreover, high leverage may reduce access to further credit due to increasing default risk.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Industrial Research Versus Development Investment: The Implications of Financial Constraints

2009

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Industrial research and development (R&D) activities constitute an important driver of economic competitiveness. The impact of R&D on productivity at the firm level stems from the implementation of newly generated knowledge and technological discoveries into new products, processes or services. Particularly the 'R' component of R&D has been found to drive productivity at the firm level. That is firms that invest a larger fraction of their total R&D on research (relative to development) are more productive both in terms of the production of new knowledge, e.g. patens as well as overall factor productivity.However, economic theory suggests that two types of market failure affect private investments in research. First, private rates of return from research activities are smaller than social rates of return because of the incompleteness of appropriability of the knowledge that is being created by investment. Second, especially for (basic) research firms may face difficulties in attracting external investors or get bank loans for financing these activities.Complexity, specificity and outcome uncertainty of such investment projects may make it particularly difficult for outsiders to judge the expected return of 'R' projects. Hence, for firms with limited internal liquidity R&D investments may therefore be constrained. If information asymmetries are larger for 'R' than for 'D' financing constraints may be more binding for 'R' projects. Underinvestment in 'R', however, may result in a noticeable slowdown in productivity growth and consequently have particularly detrimental effects on technological progress and economic development.Previous studies on financing constraints for R&D do not explicitly distinguish between the different components of R&D. This article explicitly takes the heterogeneity of the two components into account. We argue that financing development 'D' externally should be less critical than it is for industrial research 'R'. First, our results show that firms' investment in 'R' are more sensitive to liquidity than investments in 'D' indicating that firms have to rely even more on internal funds for financing the former type of activities. This may be due to the fact that the latter occurs later in the R&D process and is closer to yielding returns. That is, firms cut 'R', before they reduce 'D' if they have to allocate scarce internal funds. This has implications for R&D policy. If financial constraints for R&D are driven by the 'R' component, industrial research projects may deserve special support. Second, we show that public subsidies directed at 'R' indeed alleviate financing constraints. Industrial Research versus Development Investment:The Implications of Financial Constraints* August 2009Abstract Previous literature provided evidence on financing constraints for investment in R&D activities due to capital market imperfections and special features of R&D investments. Moreover, it has been shown that a shift in capital structure towards more debt, results in a reduction of R&D investments. This ...

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LBOs, debt and R&D intensity

Cited by 186 publications

References 36 publications

The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands

The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands

The impact of private equity on firms׳ patenting activity

Industrial Research Versus Development Investment: The Implications of Financial Constraints

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