The Dynamics of Private Equity, Innovation, and the Board of Directors : Empirical Evidence from Finland
Siivonen, Jenni (2020-04-27)
27.04.2020
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020042722664
https://urn.fi/URN:NBN:fi-fe2020042722664
Tiivistelmä
The academia and finance professionals have debated for decades over the origin of the private equity funds’ superior returns. The historical returns show that private equity investors have been able to generate higher returns than the markets on average year after year. As a consequence, the focal sector has grown globally rapidly. According to a report by Bureau van Dijk (2019), private equity investments accounted globally 26 % of the total M&A deal count in year 2018 and 16 % in terms of deal value. The development is evident also in Finland. In 2018, Finnish companies attracted the most VC funding of all European countries in comparison to the GDP (FVCA, 2019).
The impact of private equity transactions has been studied extensively yet most of the literature focus on economic performance and corporate governance framework. Although innovation is one of the key drivers for economic growth, research on technological change has remained slight. This thesis contributes to the academic literature by trying to fill that gap by combining these three elements. In other words, the purpose is to study the relationships between private equity investments, board members’ social linkages and post-acquisition innovations.
The data sample used for the empirical analysis comprises 401 venture capital and buyout deals that completed between years 2010 and 2015 and where the target is a company registered in Finland. The sample contains in total 340 individual firms.
The empirical analysis is conducted utilising quantitative methods. Logistic panel regression measures the propensity for a firm to file an eventually granted patent application. In order to measure the post-investment innovation intensity, an OLS panel regression is applied. Finally, to examine whether the private equity investors’ aim is in the end more on spurring innovation or on product development and commercialisation, an OLS panel regression is employed to measure firm performance in term of sales.
The results show that increased social capital correlates positively with both innovation and firm performance. However, innovation activities prior to receiving the investment have stronger impact and implies that instead of spurring new innovations, private equity investors focus on developing the existing innovations. The results for firm performance also show that PE investors’ focus is more on financial engineering as there is no correlation between increased innovation and increased sales.
The impact of private equity transactions has been studied extensively yet most of the literature focus on economic performance and corporate governance framework. Although innovation is one of the key drivers for economic growth, research on technological change has remained slight. This thesis contributes to the academic literature by trying to fill that gap by combining these three elements. In other words, the purpose is to study the relationships between private equity investments, board members’ social linkages and post-acquisition innovations.
The data sample used for the empirical analysis comprises 401 venture capital and buyout deals that completed between years 2010 and 2015 and where the target is a company registered in Finland. The sample contains in total 340 individual firms.
The empirical analysis is conducted utilising quantitative methods. Logistic panel regression measures the propensity for a firm to file an eventually granted patent application. In order to measure the post-investment innovation intensity, an OLS panel regression is applied. Finally, to examine whether the private equity investors’ aim is in the end more on spurring innovation or on product development and commercialisation, an OLS panel regression is employed to measure firm performance in term of sales.
The results show that increased social capital correlates positively with both innovation and firm performance. However, innovation activities prior to receiving the investment have stronger impact and implies that instead of spurring new innovations, private equity investors focus on developing the existing innovations. The results for firm performance also show that PE investors’ focus is more on financial engineering as there is no correlation between increased innovation and increased sales.