Incentivizing Innovation - How private equity time horizons dictate long-term value creation

Sammanfattning

This thesis aims to determine whether the holding period tendencies of Private Equity firms influence the level of innovation within their acquired portfolio companies. This hypothesis relies on the premise that ownership structures with a long-term view are better equipped to incentivize investments with delayed payoffs. Analyzing a sample of U.S. Private Equity buyouts from 1995 to 2015 and quantifying innovative output through both patenting volume and forward citation counts, our results show that while patenting quantity is not noticeably affected by investor time horizons, patenting quality is. This indicates that Private Equity investors with longer holding period strategies tend to push for a higher degree of innovation quality, prioritizing impactful advancements over sheer volume.