Private equity in the global economy: Evidence on industry spillovers

Abstract

A dissertation submitted to the faculty of the University of North Carolina at Chapel Hill in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business Administration (Finance) in the Department of Finance of the Kenan-Flagler Business School.

Is corporate governance of private equity targets more effective for risk mitigation?

“…This claim is supported by Cumming et al's (2007) observation that targets outperform industry peers. More marginally, since Aldatmaz and Brown (2019) discovered that sponsors spur industry spillovers after their deals, we argue that results support the view of sponsors being skilled and motivated owners that are specialised at least by industry.…”

“…The presence of company representatives and industry experts, in contrast to average private individuals, may provide benefits in terms of knowledge of product market relationships, alleviation of financial constraints, board monitoring (Allen & Phillips, 2000) and industry expertise (Aldatmaz & Brown, 2019;Cressy et al, 2007;Cumming et al, 2007;Meuleman et al, 2014). However, frictions leading to greater risk of financial distress could arise among industry experts due to conflicts of interests in indirectly revealing competitors' information, the willingness to receive information from the target as a competitor rather than contributing to its value, or personal conflicts.…”

Determinants of International Buyout Investments

“…Overall, these results confirm our main results regarding the determinants of buyout activity and indicate that buyout activity is more responsive to these factors than other traditional forms of investment. Given the existing evidence on the positive impact of buyout investments on portfolio companies Guo et al 2011;Kaplan and Stromberg, 2009) as well as the positive spillover effects documented on industry peers (Aldatmaz and Brown, 2020) and overall industry growth (Bernstein et al, 2016), our findings potentially have important policy 19 It may also be the case that some of these factors lose statistical significance due to the FDI measure being too noisy across countries. 20 implications for developing economies.…”

“…Finally, our results also have policy implications by identifying the factors a country should focus on when trying to attract more private equity investment. Aldatmaz and Brown (2020) find evidence for positive spillovers from private equity investments on public industry peers and highlights the importance of private equity capital on industry growth. Hence, in light of our findings, policy makers, especially those in developing economies, should focus on improving the institutional and regulatory environment in addition to providing growth potential to attract private capital, which may help local companies by providing the needed capital along with management expertise to realize growth opportunities.…”

“…However, the concentrated ownership and hands-on management and monitoring at the portfolio company level make private equity ownership very pivotal in portfolio company performance. Given this and the implications for PE on the broader economy (Aldatmaz and Brown, 2020;Bernstein et al 2017), buyout investments are as important regardless of their smaller size. 14 to be similar across all countries with positive buyout investments.…”