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LBOs, Debt And R&D Intensity

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  • David J Ravenscraft
  • William F Long

Abstract

This paper details the impact of debt on R&D intensity for firms undergoing a leveraged buyout (LBO). We develop seven hypotheses based on capital market imperfection theories and agency theory. To test these hypotheses, we compare 72 R&D performing LBOs with 3329 non-LBO control observations and 126 LBOs with little or no R&D expenditures. The regressions yield four statistically significant major findings. First, pre-LBO R&D intensity is roughly one-half of the overall manufacturing mean and two-thirds of the firm's industry mean. Second, LBOs cause R&D intensity to drop by 40 percent. Third, large firms tend to have smaller LBO- related declines in R&D intensity. Fourth, R&D intensive LBOs outperform both their non-LBO industry peers and other LBOs without R&D expenditures.

Suggested Citation

  • David J Ravenscraft & William F Long, 1993. "LBOs, Debt And R&D Intensity," Working Papers 93-3, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:93-3
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    File URL: https://www2.census.gov/ces/wp/1993/CES-WP-93-03.pdf
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    References listed on IDEAS

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