Private equity exits in emerging markets

Using deal level data from 2733 private equity (PE) deals from 35 emerging markets, we find that PE fund managers have a higher probability of successful exits in countries with better business and legal environments. We also find that they are able to mitigate the potential costs associated with inefficient and corrupt business environments to increase the probability of exits by IPOs in countries with higher levels of corruption. Moreover, we find that market shocks in the developed markets result in a negative ripple effect as the probability of successful exits, especially by way of IPOs, decreases in emerging markets.     

Private equity performance and capital flows: Evidence from China

For more than 1500 private equity funds in China over the period from 1992 to 2013, we construct fund level performance metrics with investment level return data and examine performance and capital flows. The median (mean) fund IRR, net of fees, is 9.0% (51.7%), based on a sample that controls for survivorship bias. Fund IRRs are neither related to fund own characteristics, such as fund size, nor to overall market conditions around the time when the fund is raised. Competition reduces fund performance: returns are lower when there are many competitors entering the industry at the same time. Although experienced partnerships are more likely to raise a follow-on fund and to raise more capital, fund performance is not related to general partnership (GP) investment experience. Further, there is no performance persistence across funds managed by the same GP. Lastly, there is some evidence of investor maturity when judged on GPs' historical performance. This evidence characterizes a burgeoning yet immature PE industry in China.     

Private equity and entrepreneurial management in management buy-outs

Critics claim that short-term profit orientation and high deal price strategies of private equity (PE) firms can negatively affect the ability of management buyouts to initiate and sustain entrepreneurial management. This study investigates this claim by comparing effects of majority PE backed and other buy-outs at different levels of financial leverage on post buy-out increases in entrepreneurial management. We propose that PE can be used as an organizational refocusing device that simultaneously increases entrepreneurial and administrative management. We find that majority PE-backed buy-outs significantly increase entrepreneurial management practices. Furthermore, the increased financial leverage positively affects administrative management in management buy-outs. However, the effect of high financial leverage is larger for majority PE-backed buy-outs. These results support the notion that PE firms help buy-out companies develop ambidextrous organizational change: i.e. simultaneously develop entrepreneurial and administrative management practices. The findings have important implications for practitioners and policy makers.     

Private label brands: major perspective of two customer-based brand equity models

In recent years the retail industry has been characterized by the fast growth of private labels, with an increase of the offer of private labels and the enhancement of their value in the marketplace. This research focuses in private label brand equity to deepen the understanding of its origins, by analyzing two alternative customer-based conceptual models. The present study was developed in the large retailing industry, comprising different retailing formats that offer private labels to consumers. Our findings suggest a conceptual private label brand equity model, which is slightly different from the Aaker's brand equity model, considering store image as an antecedent and stressing its importance in building and enhancing private labels' brand equity. Additionally, retailers searching for successful ways to compete in the retail market need to examine in more detail the customer-based brand equity related to their private labels.     

Explaining country and cross‐border liquidity commonality in international equity markets

Using a large cross section of intraday data from 25 developed countries, we study commonality in liquidity, both within and across international equity markets, over 15‐minute intervals. Within‐country and cross‐border liquidity commonalities are found to be significant and, after controlling for country and industry effects, relate to such firm‐specific measures as size, bid–ask spread, and the extent of analyst coverage. Additionally, within‐country liquidity commonality is lower for firms with depository receipts cross listed in New York or London. Cross‐border liquidity commonality is particularly high for firms with relatively high actual ownership by foreign institutions. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:630–652, 2009     

Pricing IMF liquidity provision: The value of the IMF liquidity commitment

This paper presents a market-based framework for pricing the International Monetary Fund's commitment to provide liquidity assistance, accounting for the credit risk and the insurance benefit involved in such operations. It is based on the isomorphic correspondence between Fund liquidity and common stock put options. The illustrative numerical examples show that the value of this liquidity guarantee could range between several and three hundreds basis points depending on the borrower's creditworthiness, the volatility of capital flows to the borrowing country, and the amount of funds potentially needed to meet the borrower's external obligations.     

Private equity,investment and financial constraints: firm-level evidence for France and the United Kingdom

This paper analyses the effects of private equity firms on the investments and financial constraints of their portfolio firms. We use dynamic panel data techniques to account for unobserved firm heterogeneity and endogeneity of private equity backed buyouts and expansion financing, and apply our framework to a large panel data set of firms in the UK and France. In both countries, we find that portfolio firms are characterized by higher investment levels and fewer financial constraints after expansion financing. In the UK, private equity backed buyouts outperform non-private equity backed firms in terms of both indicators.     

Private equity,Islamic finance,and sovereign wealth funds in the MENA region

The Middle East and North Africa region has experienced a significant amount of activity in the past few years, despite the worldwide economic problems caused by the subprime crisis. A strong influx of petrodollar reserves, sustainable economic growth, limited reliance on leverage, and limited exposure to the global credit markets have kept the region relatively outside the economic mishaps overwhelming a number of economies, especially in the West. Shariah‐compliant, Islamic private equity funds and the use of sovereign wealth funds as sources of private equity in the region are two important evolutionary developments to watch in the next few years. © 2008 Wiley Periodicals, Inc.     

Opening the Black Box: Power in Buyout Negotiations and the Moderating Role of Private Equity Specialization

The management buyout is an important exit strategy for small business owners. Negotiations of buyout deals have received little research attention to date. This is surprising given buyout negotiations' complexity giving rise to multiple issues that require consideration and often conflicting interests of deal parties. This paper examines perceived bargaining power in buyout negotiations between private equity (PE) firms and current owners who sell their business. We identify competition, expertise, and time pressure as key antecedents of PE firms’ perceived bargaining power and examine the moderating effect of PE firms' industry and size specialization in buyout negotiations. We use a sample of 176 respondents who each report on a particular buyout deal for a PE firm. The majority of respondents are seasoned PE professionals who held managing director or investment director positions.     

Private equity investment decisions in family firms: The role of human resources and agency costs

This study examines decision making criteria that are employed by private equity (PE) investors selecting family firms. Hypotheses test the likelihood of investment based on family firm characteristics. Findings show that PE professionals take into account family-specific criteria, including human resources and opportunities to reduce agency costs. Furthermore, PE professionals prefer family firms that are already professionalized. This research contributes to the family firm literature on both a theoretical and a methodological level, exploring nonfamily succession routes and employing techniques— conjoint analysis for data collection and multilevel models for data analysis— that have seldom been used in this context.     

Store equity: reformulation of store equity dimensions

ABSTRACT

With the growing importance of retailers and the realization that brands are among retailers’ most valuable assets, store equity has become a management priority. Store equity has been recognized as a key element that helps retailers build a sustainable competitive advantage. In this context, this study presents a conceptual model of store equity and identifies key dimensions that contribute to its formation. A comprehensive review of studies within the area of store equity was conducted to compare and analyze the dimensions of store equity as discussed in the existing literature. The findings show that store equity consists of two main dimensions: store awareness and store image, which comprises merchandise, atmosphere, and convenience. In addition, important areas for future research on store equity and related topics are highlighted.     

The interplay between home and host country institutions in an emerging market context: Private equity in Latin America

This study examines how the interplay between home and host country regulatory institutions affects the investment strategy of private equity (PE) firms in an emerging market context. To answer this question, we consider three different mechanisms: (1) the institutional hazard avoidance effect, (2) the institutional escapism effect, and (3) the dysfunctional institutions effect. Contrary to conventional wisdom, we argue that regulatory institutional differences between home and host countries can sometimes have a positive rather than a negative effect on investment likelihood. Our findings show that when a host emerging market has a strong regulatory institutional system relative to other emerging markets, it is more likely that this country will attract PE investments from firms based in home countries with very strong and very weak institutional systems. The empirical analyses, based on a polynomial specification and a dataset covering more than 300 PE firms that made close to 1500 investment transactions in Latin America during 1996–2011, are consistent with our main theoretical arguments.     

Government ownership and stock liquidity: Evidence from China

This paper documents that state ownership is associated with higher stock liquidity, a finding consistent with lower investor risk perception of firms that benefit from state ownership, like preferential financing and implicit government guarantees. The effect is found to be stronger when government ownership confers stronger benefits like firms with state controlling rather than non-controlling shareholders, and when the benefits of government ownership are important – for smaller firms, for financially constrained firms, and especially during the financial crisis period. These results suggest that investors perceive government ownership as value-enhancing, which increases their willingness to trade in such stocks.     

Matching the BRIC equity premium: A structural approach

The equity risk premium (ERP) in BRIC markets is, on average, significantly higher than that in the US market. This paper employs an endowment economy with recursive preferences and long-run risk to explain the ERP generated by a portfolio of BRIC equity indices. The combination of recursive preferences and long-run risk partially explains the BRIC ERP. It turns out that there is a puzzle with respect to BRIC data as well. This holds even if we account for high levels of aversion to consumption and utility risk and for the empirically observed autoregressive structure of US consumption and BRIC dividend growth.     

Forecasting the liquidity of very small private companies

Short-term liquidity of very small private companies (VSPCs) is important to creditors as any cash shortages result in opportunity costs due to delayed payments. We use a publicly available liquidity indicator for 19,627 Slovenian VSPCs as a special, but generalizable case of “credit record” data and financial ratios to predict possible cash shortages. Indicator is predicted and used in lagged form(s) as a predictive variable with/without financial ratios, allowing comparisons. Models, including financial ratios, are less efficient than models based on lagged liquidity indicator alone. Surprisingly, combined models perform only marginally better. Despite high overall accuracy, misclassification of companies experiencing cash shortages is high.     

Export Spillovers: Opening the Black Box

This paper studies the importance of export spillovers in a firm's decision to enter specific export markets and extends the current state of the literature by assessing different mechanisms through which they may occur, namely (i) labour movement, (ii) intra‐industry spillovers and (iii) inter‐industry linkages. We do so by exploiting a unique data set covering the universe of manufacturing firms in Denmark for the period 1995–2006 which combines transaction‐level export data, firm accounting data, employer–employee linked data and information from yearly input–output tables. We corroborate the literature on export spillovers by presenting robust evidence of destination‐specific export spillovers. The results suggest that labour mobility as well as intra‐ and inter‐industry linkages (backward linkages) are important channels for export spillovers, while presenting heterogeneous effects across firms of different size and export markets.     

Social trust and the liquidity of cross-listed securities

This paper examines various measures of market liquidity in American Depositary Receipts (ADRs) while conditioning on the level of trust in the ADR's home country. Multivariate tests show that as home-country levels of trust increase, ADR liquidity is dramatically improved. To draw stronger causal inferences, we use a difference-in-difference approach to examine liquidity surrounding an (arguably) exogenous reduction in trust and find that liquidity worsens in response to the event. These results support our hypothesis that trust is an important determinant in the liquidity of financial markets.     

Competition and the cost of liquidity to investors

The Congressional mandate to develop competitive securities markets in the United States has focused attention on the cost of liquidity to investors. Prior studies have emphasized the impact of external competition in the form of competing markets and/ or competing dealers on the bid-ask spread of the dealer. However, the spread of the specialist (dealer) on the NYSE may or may not be observable because of the interaction between public limit orders and the specialist's quotes. Our study develops a model of this interaction, and empirically verifies that internal competition in the form of limit orders has an important impact on the cost of liquidity to investors.     

Testing the liquidity preference hypothesis using survey forecasts

We evaluate the liquidity preference hypothesis (LPH) for the term structure of interest rates in a different way. Instead of using bond returns as traditional approaches, we use interest rate surveys with market expectations in order to evaluate LPH. This approach allows us to disentangle the effect of the changes in interest rate expectations from the liquidity premium. We found empirical support for the LPH with Brazilian data using both traditional and survey methods. However, the evaluation with interest rate surveys gives a higher statistical confidence level than the traditional approach when we perform tests for term premium monotonicity.     

Managing the consumer-based brand equity process: A cross-cultural perspective

Most consumer-based brand equity (CBBE) models are linear and fail to capture the complexity of the brand equity construct and its benefits in terms of key consumer behavioral outcomes. More complex and dynamic models focusing on CBBE as a process often lack empirical support particularly from more than one country. This study builds on and extends previous research by empirically examining the configural nature of the CBBE building process cross-nationally, and by investigating differences vis-a-vis key consumer behavioral outcomes (namely, willingness to pay a price premium, brand recommendation and repurchase intention). These differences are postulated and explained through culture theory particularly the cultural dimension of individualism/collectivism. Using fuzzy-set/Qualitative Comparative Analysis (fs/QCA), survey data from Greece and Germany support the robustness of the extended CBBE model. The model shows that overall brand equity and consumer behavioral outcomes are created through the brand building, brand understanding, and brand relationship blocks, and identifies core causes and common patterns across countries providing a useful diagnostic tool for international brand management.