Open-market purchases of public equity by private equity investors: Size and home-bias effects

Stotz, Olaf; Wanzenried, Gabrielle; Döhnert, Karsten

doi:10.1016/j.jeconbus.2010.04.002

Cited by 5 publications

(7 citation statements)

References 36 publications

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“…For the purpose of this research, a dummy variable Active i distinguishing between an activism strategy and a passive investment approach of the PE firm was proposed. Directors or top managers replacement and/or an acquisition of a controlling block of shares are recognized as instruments of influence on the target firm’s decisions to increase a value of the firm and are a typical practice of PE governance intervention (Acharya et al , 2012; Chen et al , 2014; Stotz et al , 2010). It helps to use shareholder activism strategy and influence the decision-making in the investee.…”

Section: Methodsmentioning

confidence: 99%

“…Striving for closer monitoring by changing board composition, PE investors nominate their members on the board, who provide private information on company’s operations. With this information, the activist PE could impact the target company to pursue policy that increases its value (Stotz et al , 2010).…”

Section: Methodsmentioning

confidence: 99%

“…The studies on the effect of PE investments on portfolio companies’ performance mostly tried to focus on the effect of the buyout deals (Achleitner et al , 2013; Bergström et al , 2007; Boucly et al , 2009; Castellaneta and Gottschalg, 2016; Ligterink, 2017; Phalippou et al , 2018; Scellato and Ughetto, 2013, etc.). Fewer studies investigate the effects of PE investments in public companies (Acharya et al , 2012; Achleitner et al , 2008a, 2008b; Aldatmaz and Brown, 2020; Chen et al , 2014; Mietzner and Schweizer, 2008; Stotz et al , 2010) and mostly analyze single national markets (Acharya et al , 2012; Achleitner et al , 2008a; Chen et al , 2014).…”

Section: Introductionmentioning

confidence: 99%

“…Economies are different in their institutional environment, as well as geographic characteristics, that raise interest in analysis of particular geographic subgroups, separately considering PE investments in the USA, Europe or single European countries (Stotz et al , 2010). Evidently, the use of shareholder activism is affected by regulation, the rights and liabilities of investors in relation to portfolio companies (McNulty and Nordberg, 2016).…”

Section: Introductionmentioning

confidence: 99%

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Investor activism strategies of private equity firms: evidence from continental Europe

Berezinets

Ilina

2021

SEF

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Purpose This paper aims to deal with the issue of shareholder activism of private equity investors in public companies. The study identifies characteristics of target firms and investors related to the likelihood of private equity activism. The research also examines whether shareholder activism strategy of private equity investors is associated with the better performance in future and value creation of target firms. Design/methodology/approach The paper applies econometric modeling to hand-collected data on private equity investments in listed companies, in the form of private investment in public equity and open-market share purchases, from eight Continental Europe’s countries for the period 2005–2014. Findings The findings indicate that the probability of shareholder activism is higher if the target firm’s industry corresponds to the private equity investor’s industry specialization, if the private equity firm is older, if the target is larger and the average ownership share purchased by the investor is higher. Conversely, the probability of shareholder activism is lower where a private equity firm invests in the target for the first time. A target firm with an activist investor has poorer operational performance results one year following the investment compared to a target firm with a passive private equity investor. Research limitations/implications Results from the analysis of transactions in Continental Europe countries with French and German legal origin may be not generalizable to other markets with the different legal tradition and institutional environment. Originality/value This research provides new empirical evidence on private equity activism in listed companies of Continental Europe. By distinguishing between active and passive investments, testing rarely considered characteristics to provide valuable insights and analyzing the effect of activism on the target firm’s performance, the study contributes variously to the still-limited body of literature on private equity activism in public companies with a governance structure based on concentrated ownership. The findings emphasize the relationship between shareholder activism and both target and investor’s characteristics from perspective of mitigating agency problem and value creation in target firms. By simultaneously investigating investments in public companies from several European markets, the study complements empirical evidence mostly obtained from studies of a single national market.

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Section: Methodsmentioning

confidence: 99%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Investor activism strategies of private equity firms: evidence from continental Europe

Berezinets

Ilina

2021

SEF

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“…The study by Stotz, Wanzenried and Döhnert (2010) reveals that PE investors make an investment in the public equity of listed firms in their home country through open market operations. It results in increase in return on the equity of a firm in the home country which justifies home bias observed with PE investment.…”

Section: Review Of Literaturementioning

confidence: 99%

Impact of Venture Capital Investment on Firm Performance: An Indian Evidence

Katti

Raithatha

2018

Global Business Review

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We evaluate the monitoring and certification hypotheses associated with venture capital (VC) investors involved with Indian listed firms having the potential to influence firm performance. Empirical results of our study do not support monitoring and certification hypotheses associated for VC investors involved in publicly listed firms in India. On the other hand, we find the evidence of value erosion due to the presence of VC investors. The negative effect is justified through the opportunistic behaviour of the investor having a very easy route to exit investment through the secondary market in case of expected underperformance of the firm. The study also reveals that the origin of VC investors does influence firm performance. The results have a significant impact due to the regulatory framework defining the portfolio of VC investors.

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What's the value of a TBTF guaranty? Evidence from the G-SII designation for insurance companies ✰

Dewenter

Riddick

2018

Journal of Banking & Finance

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Open-market purchases of public equity by private equity investors: Size and home-bias effects

Cited by 5 publications

References 36 publications

Investor activism strategies of private equity firms: evidence from continental Europe

Investor activism strategies of private equity firms: evidence from continental Europe

Impact of Venture Capital Investment on Firm Performance: An Indian Evidence

What's the value of a TBTF guaranty? Evidence from the G-SII designation for insurance companies ✰

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