Josh Lerner Articles — HBS Working Knowledge

Private Equity and Employment

Authors:	Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda
Published:	November 16, 2011
Paper Release Date:	September 2011
Feature:	Working Papers

Is there truth to the claim that leveraged buyouts bring huge job losses? In this paper, the authors examine employment responses to US private equity buyouts at a much more granular level than earlier research, exploiting a much larger sample of transactions, a more extensive set of controls, and a novel ability to track outcomes at firms and establishments (e.g., individual factories and offices). They also exploit the strengths of their data to explore new questions about private equity's role in the creative destruction process and its impact on restructuring activity inside target firms. Overall, they find that private equity buyouts catalyze the creative destruction process in the labor market as measured by gross job flows and the purchase and sale of business establishments, with only a modest net impact on employment. Research by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, Javier Miranda.

Sharpening Your Skills: Leveraging Intellectual Property

Published:	September 29, 2011
Feature:	Sharpening Your Skills

Many companies lack a coherent policy for maximizing the value of their intellectual property. In this collection from our archives, Harvard Business School faculty offer insights on the importance of IP and how best to protect and use it.

Getting to Eureka!: How Companies Can Promote Creativity

Published:	August 22, 2011
Feature:	Research & Ideas
Forum:	open for comment; 19 Comments posted

As global competition intensifies, it's more important than ever that companies figure out how to innovate if they are going to maintain their edge, or maintain their existence at all. Six Harvard Business School faculty share insights on the best ways to develop creative workers.

Business Plan Contest: 15 Years of Building Better Entrepreneurs

Published:	August 18, 2011
Feature:	Lessons from the Classroom
Forum:	open for comment; 1 Comment posted

Since 1997, Hundreds of student-entrepreneurs have tested their ideas at Harvard Business School's annual Business Plan Contest. Here is what they have learned about success, failure, and themselves. From the HBS Alumni Bulletin.

With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship

Authors:	Josh Lerner and Ulrike Malmendier
Published:	July 27, 2011
Paper Release Date:	March 2011
Feature:	Working Papers

While starting a new company usually requires an independent spirit and self-sufficient nature, the decision to jump into entrepreneurship is often influenced by the acts of others. In this paper, Josh Lerner and Ulrike Malmendier explore how the entrepreneurial tendencies of peers affect not only one's decision to start a company, but whether that company will succeed. The researchers use data from a decade of first-year class sections at Harvard Business School.

Sharpening Your Skills: Motivation

Published:	June 22, 2011
Feature:	Sharpening Your Skills

Can employers motivate employees to work more creatively, ethically, or productively? Or does that power reside solely within the individual? Recent research at Harvard Business School suggests workers can be motivated by their environment.

Inducement Prizes and Innovation

Authors:	Liam Brunt, Josh Lerner, and Tom Nicholas
Published:	June 3, 2011
Paper Release Date:	May 2011
Feature:	Working Papers

Throughout recent history, many foundations have tried to induce innovation through competition, offering massive cash prizes to inventors who meet the challenge of creating world-changing inventions. For instance, in 1996 the X Prize Foundation offered $10 million to the first non-government organization to launch a reusable, suborbital manned spacecraft twice within two weeks. The prize was awarded in 2004 to a project financed by Microsoft co-founder Paul Allen. The problem is that inventors cannot win these competitions if they cannot come up with funding to realize their inventions, and research and development costs often exceed the amount of the cash prize. So, does the incentive of an eventual prize really induce innovation? In this paper, Liam Brunt, Josh Lerner, and Tom Nicholas look to answer that question, using a data set of prizes awarded by the Royal Agricultural Society of England (RASE) between 1839 and 1939.

The Consequences of Financial Innovation: A Counterfactual Research Agenda

Authors:	Josh Lerner and Peter Tufano
Published:	April 7, 2011
Paper Release Date:	February 2011
Feature:	Working Papers

While financial innovation is often praised as a positive force for societal growth, it also takes much of the blame for the recent global financial crisis. In this paper, Harvard Business School professors Josh Lerner and Peter Tufano explore financial innovation and discuss how it differs from other types of innovation.

Managing the Open Source vs. Proprietary Decision

Published:	March 2, 2011
Feature:	Research & Ideas
Forum:	open for comment; 2 Comments posted

In their new book, The Comingled Code, HBS professor Josh Lerner and London School of Economics professor Mark Schankerman look at the impact of open source software on economic development. Our book excerpt discusses implications for managers.

"An Unfair Advantage"? Combining Banking with Private Equity Investing

Authors:	Lily Fang, Victoria Ivashina, and Josh Lerner
Published:	June 24, 2010
Paper Release Date:	June 2010
Feature:	Working Papers

Does the combination of banking and private equity investing endow banks with superior information that allows them to identify good prospects and garner superior returns? Or does the combination bestow banks with an unfair ability to expand their balance sheets, capturing benefits within the bank at the expense of the overall market and ultimately the taxpayers? INSEAD's Lily Fang and Harvard Business School professors Victoria Ivashina and Josh Lerner examined nearly 8,000 unique private equity transactions between 1978 and 2009, looking in depth at the nature of the private equity investors, the structure of the investments, and the performance of the firms. Collectively, findings suggest that there are risks in combining banking and private equity investing. The results are consistent with many of the worries about these transactions articulated by policymakers.

The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis

Authors:	William R. Kerr, Josh Lerner, and Antoinette Schoar
Published:	April 15, 2010
Paper Release Date:	March 2010
Feature:	Working Papers

What difference do angel investors make for the success and growth of new ventures? William R. Kerr and Josh Lerner of HBS and Antoinette Schoar of MIT provide fresh evidence to address this crucial question in entrepreneurial finance, quantifying the positive impact that angel investors make to the companies they fund. Angel investors as research subjects have received much less attention than venture capitalists, even though some estimates suggest that these investors are as significant a force for high-potential start-up investments as venture capitalists, and are even more significant as investors elsewhere. This study demonstrates the importance of angel investments to the success and survival of entrepreneurial firms. It also offers an empirical foothold for analyzing many other important questions in entrepreneurial finance.

Private Equity and Industry Performance

Authors:	Shai Bernstein, Josh Lerner, Morten Sørensen, and Per Strömberg
Published:	January 13, 2010
Paper Release Date:	December 2009
Feature:	Working Papers

In response to the global financial crisis that began in 2007, governments worldwide are rethinking their approach to regulating financial institutions. Among the financial institutions that have fallen under the gaze of regulators have been private equity (PE) funds. There are many open questions regarding the economic impact of PE funds, many of which cannot be definitively answered until the aftermath of the buyout boom of the mid-2000s can be fully assessed. HBS professor Josh Lerner and coauthors address one of these open questions, by examining the impact of PE investments across 20 industries in 26 major nations between 1991 and 2007. In particular, they look at the relationship between the presence of PE investments and the growth rates of productivity, employment, and capital formation.

Government's Positive Role in Kick-Starting Entrepreneurship

Q&A with:	Josh Lerner
Published:	December 7, 2009
Feature:	Research & Ideas

The U.S. government has spent billions of dollars bailing out troubled companies. Is it time for Uncle Sam to invest in new entrepreneurial firms as well? Professor Josh Lerner makes the case for limited government involvement in his book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It.

Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion

Authors:	Henry Chen, Paul A. Gompers, Anna Kovner, and Josh Lerner
Published:	August 6, 2009
Paper Release Date:	June 2009
Feature:	Working Papers

From Silicon Valley to Herzliya, Israel, venture capital firms are concentrated in very few locations. More than half of the 1,000 venture capital offices listed in Pratt's Guide to Private Equity and Venture Capital Sources are located in just three metropolitan areas: San Francisco, Boston, and New York. More than 49 percent of the U.S.-based companies financed by venture capital firms are located in these three cities. This paper examines the location decisions of venture capital firms and the impact that venture capital firm geography has on investments and outcomes. Findings are informative both to researchers in economic geography and to policymakers who seek to attract venture capital.

The Investment Strategies of Sovereign Wealth Funds

Authors:	Shai Bernstein, Josh Lerner, and Antoinette Schoar
Published:	April 17, 2009
Paper Release Date:	March 2009
Feature:	Working Papers

The role of sovereign wealth funds (SWFs) in the global financial system has been increasingly recognized in recent years, and many reports suggest that SWFs are often employed to further the geopolitical and strategic economic interests of their governments. The resources controlled by these funds—estimated to be $3.5 trillion in 2008—have grown sharply over the past decade. Projections, while inherently tentative due to the uncertainties about the future path of economic growth and commodity prices, suggest that they will be increasingly important actors in the years to come. Despite this significant and growing role, financial economists have devoted remarkably little attention to these funds. The lack of scrutiny must be largely attributed to the deliberately low profile adopted by many SWFs, which makes systematic analysis challenging. Bernstein, Lerner, and Schoar analyze how SWFs vary in their investment styles and performance across various geographies and governance structures. Taken as a whole, results suggest that high levels of home investments by SWFs, particularly those with the active involvement of political leaders, are associated with trend chasing and worse performance.

Fear of Rejection? Tiered Certification and Transparency

Authors:	Emmanuel Farhi, Josh Lerner, and Jean Tirole
Published:	February 25, 2009
Paper Release Date:	October 2008
Feature:	Working Papers

The sub-prime crisis has thrown a harsh spotlight on the practices of securities underwriters, which provided too many complex securities that proved to ultimately have little value. Certifiers such as rating agencies, journals, standard setting bodies, and providers of standardized tests play an increasingly important role in the market economies. Yet as scrutiny of rating agencies in the aftermath of the sub-prime crisis has shown, these organizations have complex incentive structures and may adopt problematic approaches. On an explicit level, all major rating agencies follow a well-defined process, whose end product is the publication of a rating based on an objective analysis. But firms have been historically able to get rating agencies not to disclose ratings that displease them. HBS professor Josh Lerner and colleagues examined when certifiers might adopt more complex rating schemes, rather than the simple pass-fail scheme, and highlight that such nuanced schemes are more likely when the costs of such ratings are lower. In addition, these schemes are more common when sellers are less averse to the revelation of information about their quality, and more impatient.

The Success of Persistent Entrepreneurs

Q&A with:	Paul A. Gompers, Josh Lerner, and David S. Scharfstein
Published:	February 2, 2009
Feature:	Research & Ideas

Want to be a successful entrepreneur? Your best bet might be to partner with entrepreneurs who have a track record of success, suggests new research by Paul A. Gompers, Josh Lerner, David S. Scharfstein, and Anna Kovner.

Performance Persistence in Entrepreneurship

Authors:	Paul A. Gompers, Anna Kovner, Josh Lerner, and David S. Scharfstein
Published:	December 3, 2008
Paper Release Date:	September 2008
Feature:	Working Papers

All else equal, a venture-capital-backed entrepreneur who starts a company that goes public has a 30 percent chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18 percent chance of succeeding, and entrepreneurs who previously failed have a 20 percent chance of succeeding. But why do these contrasts exist? Such performance persistence, as in the first example, is usually taken as evidence of skill. However, in the context of entrepreneurship, the belief that successful entrepreneurs are more skilled than unsuccessful ones can induce real performance persistence. In this way, success breeds success even if successful entrepreneurs were just lucky. Success breeds even more success if entrepreneurs have some skill.

The Litigation of Financial Innovations

Author:	Josh Lerner
Published:	November 5, 2008
Paper Release Date:	September 2008
Feature:	Working Papers

The past 10 years have seen a profound change in the conditions under which financial innovations are pursued. Because patents fundamentally alter the way in which innovations can be used, assessing the impact of patenting is critical to understanding the future of financial innovation. Litigation is crucial to delineating the boundaries of patent awards, and this paper examines the litigation of such financial patents to gain insights into the future of financial innovation. This paper seeks to understand the litigation of financial innovations, an area where patents have only recently been granted.

Secrets of the Academy: The Drivers of University Endowment Success

Authors:	Josh Lerner, Antoinette Schoar, and Jialan Wang
Published:	September 17, 2008
Paper Release Date:	August 2008
Feature:	Working Papers

University endowments are important and interesting institutions both in the investing community and society at large. They play a role in maintaining the academic excellence of many universities that rely heavily on income from their endowments. In contrast, poor finances can undermine a school's ability to provide academic services altogether. Endowments have also received much attention recently for their superior investment returns compared with other institutional investors. In this study, the authors document the trends in college and university endowment returns and investments in the United States between 1992 and 2005.