Private equity performance under extreme regulation

Cumming, Douglas J.; Zambelli, Simona

doi:10.1016/j.jbankfin.2012.04.002

Cited by 43 publications

(14 citation statements)

References 32 publications

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“…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, , )…”

Section: Resultsmentioning

confidence: 97%

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

Ughetto

2014

The Manchester School

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The paper examines the relationship between investments and cash flows for a panel of 206 low-and medium technology firms located in the UK, France, Italy and Spain, 108 of which underwent a buyout between 1997 and 2004. The results highlight that the sensitivity of investments to cash flows is increased when a buyout occurs, while investment levels do not seem to be affected after a buyout. However, differential effects emerge when considering the framework conditions in which investee firms operate and the typology and characteristics of investing funds.

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Section: Resultsmentioning

confidence: 97%

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

Ughetto

2014

The Manchester School

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“…In order to account for these legal changes we have created three different dummy variables that are metaphorically labeled: ‘Dark period’, ‘Hope period’, and ‘Sun period’ (as in Cumming and Zambelli, , ). In our data, the ‘Dark period’ identifies the period of illegality and represents the time span from January 1999 to September 2001 over which the legitimacy of leveraged buyouts was highly disputed and LBOs were deemed illegal by the Italian Supreme Court (for a detailed discussion on the reasons and case law underlying the illegality of LBOs in Italy, see Zambelli, ).…”

Section: Institutional Context Affecting the Italian Pe Industrymentioning

confidence: 99%

“…Our performance measures reported herein are those based on the AIDA database by Bureau Van Dijk, and we did not find major discrepancies with self‐reporting in our surveys. Third, we considered other explanatory variables including but not limited to specific contractual terms described in Cumming and Zambelli (). The findings are robust (explicitly shown in online Appendix 2).…”

Section: Multivariate Testsmentioning

confidence: 99%

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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“…Recent empirical studies highlight the importance of the legal environment for the development and success of VC activity in a country (e.g. Cumming and Knill 2012;Cumming and Zambelli 2013;Cumming et al 2006Johan and Najar 2010;Nahata et al 2014;Tykvova 2013;Wright et al 2004). Cumming et al (2006), for example, show that better legal systems facilitate VC exits and increase the probability of an IPO exit.…”

Section: Legal Environment and Level Of Enforcementmentioning

confidence: 99%

“…Active involvement by VCs has proved to be one of the most effective strategies for adding value to their portfolio companies (e.g. Chemmanur et al 2010;Cumming and Johan 2013;Cumming and Zambelli 2013;Cumming et al 2004Cumming et al , 2005Suchard 2009).…”

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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Private equity performance under extreme regulation

Cited by 43 publications

References 32 publications

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

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

Due Diligence and Investee Performance

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

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