Illegal Buyouts

Cumming, Douglas J.; Zambelli, Simona

doi:10.2139/ssrn.988357

Cited by 8 publications

(10 citation statements)

References 40 publications

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“…With regards to the size of the sample, we survey 164 ventures. This figure is in line with datasets in Cumming and Zambelli (2010) reporting 162 transactions, Cumming (2008) investigating 223 companies, Hellmann Puri (2000 reporting 173 respondents, and Sapienza et al (1995Sapienza et al ( , 1996 with 221 respondents. Finally, Hege, Palomino, and Schwienbacher (2009) in a cross-sectional study of European VC-backed companies (2008) who reports a median ownership by outside investors of 51 per cent but with a dispersion similar to ours.…”

Section: Data Descriptionsupporting

confidence: 85%

The Effects of Venture Capitalists on the Governance of Firms

Bonini

Alkan

Salvi

2011

Corporate Governance

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Manuscript Type: EmpiricalResearch Question/Issue: What determines venture capitalists influence on the governance of firms? How do venture capitalists shape the governance of their investees? Are venture capitalists governance practices consistent across countries? These important questions are under-investigated in the extant literature. In this study, we shed light on the effects of venture capital investors on a large set of governance decisions and we discover the existence of striking cross-country differences. Research Findings/Insights: We test our conjectures on a unique hand-collected questionnaire-based dataset of 164 companies in five countries and two regions (Europe and the US). Our empirical results show that there is a strong and positive relationship between VCs' funding and their influence on some factors like decisions on CEO hiring, executive compensation, board decisions and appointments. Employee incentives are also positively related to the proportion of VC funding. On the other hand, results show that the proportion of VC funding is only marginally significant in explaining VC influence on strategy direction and investment planning. Our analysis though, offers a remarkably different view after splitting data into European and American subsamples. Theoretical/Academic Implications: Our results provide a novel view of the functioning of the Venture Capital industry and its degree of pervasiveness in the management of portfolio companies. Adopting a unique dataset, we add new evidence on detailed governance decisions, thus supporting the idea that the incremental contribution of a professional investor to a new venture is largely exceeding the capital infusion only. Finally, we show that governance decisions exhibit significant country effects. This evidence supports the view that a global theory of corporate governance cannot rely on a single interpretation framework such as agency theory, but needs to be integrated with predictions from alternative views such institutional theory. Practitioner/Policy Implications: Corporate governance is the essential mechanism allowing proper management of financial and corporate resources by aligning incentives of employees and investors, thus enabling oversight and control on companies. Yet, corporate governance rules and mechanisms are costly and have different effectiveness across countries. Our results provide guidance to investors in selecting the appropriate set of governance provisions conditional on a set of investment-specific factors.

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Section: Data Descriptionsupporting

confidence: 85%

The Effects of Venture Capitalists on the Governance of Firms

Bonini

Alkan

Salvi

2011

Corporate Governance

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“…Moreover, in 2002, a period spanning 1999-2006, it is possible to identify three different sub-periods, associated with a number of changes in legal settings experienced by the Italian PE industry. As shown in Cumming and Zambelli (2010), these legal changes significantly affected the frequency and the governance structure of PE transactions in Italy and, as such, it is plausible to expect that they may also affect the DD time and the type of DD performed by PE funds.…”

Section: Institutional Context Affecting the Italian Pe Industrymentioning

confidence: 99%

“…The different institutional settings provide useful tools for our empirical analyses below. From the results of Cumming and Zambelli (2010), we expect a weaker DD over the Dark period (or at least a distorted DD), since PE funds in that period are aimed at minimising the risk of a legal dispute with the target firm that could end up with an illegality declaration, and hence DD is focused on ascertaining the friendliness of the transaction in order to minimise the risk of a legal dispute. Over the dark period, PE investors have obvious legal incentives to not invest in hostile targets.…”

Section: Institutional Context Affecting the Italian Pe Industrymentioning

confidence: 99%

“…The threat of a legal dispute at that time may distort the investors' incentives to implement a thorough DD on items that may have otherwise been more important. Cumming and Zambelli (2010) show how the periods of illegality and uncertain legality in Italy have increased the incentives for PE investors to implement a distorted DD of their target firms, because PE investors seem to be more motivated to screen firms according to the level of agreeableness with their target management and minority shareholders in the hopes of reducing the risk of a legal dispute that could turn into an illegality declaration of the entire acquisition process.…”

Section: Institutional Context Affecting the Italian Pe Industrymentioning

confidence: 99%

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Due Diligence and Investee Performance

Cumming

Zambelli

2016

Euro Fin Management

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Our study provides new evidence on due diligence (DD) and its impact on investee performance.We estimate the economic value of due diligence (DD) in the context of private equity (PE) by investigating the relationship between DD and investee performance, while controlling for endogeneity.With the adoption of a novel and unique dataset, we find evidence highly consistent with the view that a thorough DD is associated with improved future investee performance. We also distinguish the role of different types of DD and show that the DD carried out internally by fund managers has a more pronounced impact on performance. Instead, the DD mainly performed by external agents, such as consultants, lawyers and accountants, gives rise to puzzling results and imperfect matching, highlighting the existence of apparent agency problems.JEL Classification: G23, G24, G28

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“…In some European countries, PE involves the equity financing of existing firms and includes expansion and late-stage financing, turnaround, and buyouts (e.g. Cumming and Zambelli 2010). In other contexts, PE is used for buyouts only (e.g.…”

Section: Introductionmentioning

confidence: 99%

‘If the Facts Don't Fit the Theory … ’: The Security Design Puzzle in Venture Finance

Zambelli¹

2014

Int J Management Reviews

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When confronting theory with evidence, divergent results surface with reference to the optimal securities that should be adopted in venture capital (VC) finance. The vast majority of the theoretical models on VC consistently predict that convertible securities, especially in the form of convertible preferred stocks, represent the optimal form of finance. While the theoretical literature seems to be supported by empirical studies in the US, the evidence outside the US shows the opposite results. Puzzling patterns emerge, especially when comparing the evidence from the US, Canada and Europe, and an intensive academic debate is under way. The evidence becomes even more challenging when considering the contrasting financing behaviour of US venture capitalists (VCs) investing in Canada. It has been documented that US VCs investing in Canada adopt a wide range of securities other than convertible stocks. If convertible securities truly represent the optimal form of VC finance, why would US VCs use different types of securities when investing in Canada? At present, researchers are still arguing about which factors would have the most significant impact on explaining the different financing behaviour of VCs around the world. The purpose of this paper is to shed some light on the ongoing international debate on the optimal security design and contracting behaviour in venture finance. With this review, the authors intend to contribute to the VC literature by identifying current trends, explanations and determinants underlying the puzzling empirical evidence on the financing structure adopted by VCs around the world.

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Illegal Buyouts

Cited by 8 publications

References 40 publications

The Effects of Venture Capitalists on the Governance of Firms

The Effects of Venture Capitalists on the Governance of Firms

Due Diligence and Investee Performance

‘If the Facts Don't Fit the Theory … ’: The Security Design Puzzle in Venture Finance

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