Illegal buyouts

Abstract

a b s t r a c tThis study empirically examines the effects of a regulation change on the structure and governance of leveraged buyouts (LBOs) within the Italian private equity market, whose transactions were only recently legalized. With a new data set covering approximately 85% of the buyout funds active in Italy during the period of 1999-2006, we find that a regulation that prohibits LBOs can reduce their frequency, but does not exclude them altogether. Rather, it inhibits efficient governance and distorts decision making. Overall, the data are consistent with the view that laws prohibiting LBOs result in less efficient LBO arrangements.

Investments, Financing Constraints and Buyouts: the Effect of Private Equity Investors on the Sensitivity of Investments to Cash Flow

“…The regulatory conditions set for PE funds are also deemed to affect the structure of buyout transactions and the governance of target firms, in turn influencing firms' investments and investment‐cash flow elasticities. Excessive regulation often results in less efficiently structured buyout arrangements, in a reduction in the supply and quality of capital offered by PE funds and in lower incentives for PE investors to be actively involved in the governance of the target companies, to the detriment of investment performance (Cumming and Zambelli, , )…”

“…Cumming and Zambelli () analyse the effect of regulation on the structure of buyout transactions and the governance of the target firms in Italy. In Italy LBOs have experienced a period of prohibition until the 2004 regulatory change.…”

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

“…It could be interesting to compare the VC financing behaviour in other bank‐oriented countries (such as Germany and Italy). The studies of Cumming and Zambelli () and Zambelli () represent a first step towards this direction and show that, in Italy, convertible securities are not most commonly used, and VCs use a wide set of securities instead. More empirical studies are warranted in this area.…”

“…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 ). In other contexts, PE is used for buyouts only (e.g.…”

The effect of leverage on the cost of capital of US buyouts

“…However, in a global financial market, the transaction structures and vehicles are equivalent in most of the other countries. International differences with respect to regulation, as e.g., described in Cumming and Johan (2007), Bongaerts and Charlier (2009), Cumming and Zambelli (2010) or with respect to taxation can favor or compromise the use of debt and private equity. Legislations on corporate governance and investor protection affect the role and scope of active investors and the design of debt contracts.…”