The Impact of Corporate Restructuring on Industrial Research and Development

This paper investigates whether the recent wave of corporate restructuring in the United States has had a negative impact on research arid development investment by industrial firms. Using a newly constructed sample of about 2500 manufacturing firms from 1974 to 1987, I examine three major classes of restructuring events: leveraged buyouts and other "going private" transactions, mergers and acquisitions in general, and substantial increases in leverage. The major conclusions are first, that leveraged buyouts do not occur in R&D-intensive sectors or firms and cannot therefore be having much of an impact on R&D spending; rather, the evidence seems consistent with an agency cost and cash flow-driven model of buyouts. Second, major increases in leverage are followed by substantial declines in the R&D intensity of the firms in question, and the effect takes at least three years to work through. Finally, although the evidence on acquisitions by publicly traded firms is mixed, the basic conclusion is that any declines in the R&D intensity of acquiring firms relative to their past history appear to be associated with the leverage structure of the transaction rather than the acquisition itself.