Do Private Equity Returns Result from Wealth Transfers and Short-Termism? Evidence from a Comprehensive Sample of Large Buyouts

Harford, Jarrad; Kolasinski, Adam C.

doi:10.1287/mnsc.2013.1790

Cited by 53 publications

(38 citation statements)

References 36 publications

(28 reference statements)

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“…less reputed) ( Table 2). This finding contradicts Degeorge, Martin and Phalippou (2016), but is consistent with Arcot et al (2015), Harford and Kolasinski (2013) and Strömberg (2008). Arcot et al (2015) suggest that less reputed PE firms may be under pressure to engage more in SMBOs to establish a track record.…”

Section: Data and Sample Descriptionsupporting

confidence: 86%

“…Regarding PE firm reputation, we find that sample SMBOs are backed predominantly by PE firms outside the top 10 (i.e. This finding contradicts Degeorge, Martin and Phalippou (2016), but is consistent with Arcot et al (2015), Harford and Kolasinski (2013) and Strömberg (2008). This finding contradicts Degeorge, Martin and Phalippou (2016), but is consistent with Arcot et al (2015), Harford and Kolasinski (2013) and Strömberg (2008).…”

Section: Data and Sample Descriptionsupporting

confidence: 83%

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Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

Jelic

Dan

Wright

2019

British J of Management

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This paper examines the impact of private equity (PE) directors and their human capital on operating performance in a unique hand-collected sample of 200 secondary management buyouts (SMBOs) during 2000-2015. It shows that PE directors' human capital tends to play a statistically and economically important role in performance. Financial (rather than operational) experience of PE directors in acquiring PE firms tends to have a substantial impact on post-SMBO profitability, while high-level business education is especially important in post-SMBO growth performance enhancement. Complementary expertise, provided by directors in buying and selling PE firms, plays an important role only in post-SMBO growth improvements.Overall, the paper's results provide evidence that governance benefits of the buyout model tend not to be exhausted in the primary buyout stage, but the effects in the secondary buyout phase depend on the nature of PE directors' human capital resource, notably in respect of the balance between board monitoring and advisory roles. This study therefore adds to growing evidence on how the ownership and life-cycle nature of firms affect sustainability of boards fulfilling their roles. The results are robust to sample selection bias, different types of PE firms and different measures of human capital.

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Section: Data and Sample Descriptionsupporting

confidence: 86%

Section: Data and Sample Descriptionsupporting

confidence: 83%

Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

Jelic

Dan

Wright

2019

British J of Management

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“…These findings, taken together with our findings of the effects of PE sponsorship on yield spreads, suggest that PE firms do not expropriate investors who purchase bonds offered by PE-backed companies after the IPO. Our findings are generally consistent with those of Harford and Kolasinski (2013). They find little evidence that PE firms expropriate leveraged buyout (LBO) debt investors via investment and dividend policies of PE-sponsored companies.…”

Section: Introductionsupporting

confidence: 85%

Private Equity Firms’ Reputational Concerns and the Costs of Debt Financing

Huang¹,

Ritter²,

Zhang³

2016

J. Financ. Quant. Anal.

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A popular view is that private equity (PE) firms tend to expropriate other stakeholders of their portfolio companies. Bonds offered during 1992–2011 by companies after their initial public offerings (IPOs) do not reflect this view. We find that yield spreads on bonds offered by PE-backed companies are, on average, 70 basis points lower, holding other things constant. We also find that PE-backed companies have more conservative investment and dividend policies after bond offerings compared with non-PE-backed companies. These results suggest that PE firms’ reputational concerns dominate their wealth expropriation incentives and help their portfolio companies reduce the costs of debt.

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“…The evidence on private equity returns to limited partners net of fees is mixed (Kaplan and Schoar, 2005;Phalippou and Gottschalg, 2009;Robinson and Sensoy, 2013). Harford and Kolasinski (2014) report that gains generated by private equity do not come at the expense of their counterparties, a finding that complements our central findings.…”

supporting

confidence: 77%

Divisional buyouts by private equity and the market for divested assets

Hege

Lovo

Slovin

et al. 2018

Journal of Corporate Finance

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We study the role and performance of private equity (PE) in corporate asset sales. Corporate sellers obtain significantly positive excess returns in PE deals, gains in wealth significantly greater than for intercorporate asset sales. Based on exit valuations for 98% of PE deals, we find gains in enterprise value in buyouts are significantly greater than for benchmark firms. Corporate seller excess returns are positively correlated with subsequent gains in asset enterprise value. A parsimonious auction model suggests that only restructuring capabilities of PE (not acquisition of undervalued assets) can explain the pattern of the gains generated in these PE deals.Keywords: Divisional buyouts, asset sales, private equity, restructuring, auction.JEL classification: G32, G34. Divisional Buyouts by Private Equity and the Market for Divested Assets AbstractWe study the role and performance of private equity (PE) in corporate asset sales. Corporate sellers obtain significantly positive excess returns in PE deals, gains in wealth significantly greater than for intercorporate asset sales. Based on exit valuations for 98% of PE deals, we find gains in enterprise value in buyouts are significantly greater than for benchmark firms. Corporate seller excess returns are positively correlated with subsequent gains in asset enterprise value. A parsimonious auction model suggests that only restructuring capabilities of PE (not acquisition of undervalued assets) can explain the pattern of the gains generated in these PE deals. Divisional Buyouts by Private Equity and the Market for Divested Assets

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Do Private Equity Returns Result from Wealth Transfers and Short-Termism? Evidence from a Comprehensive Sample of Large Buyouts

Cited by 53 publications

References 36 publications

Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

Private Equity Firms’ Reputational Concerns and the Costs of Debt Financing

Divisional buyouts by private equity and the market for divested assets

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