Is Job Insecurity Higher in Leveraged Buyouts?

This article assesses whether job insecurity is higher in leveraged buyouts (LBOs) than elsewhere. It draws on matched employer‐employee data from the British 2011 Workplace Employment Relations Study linked to data from the Centre for Management Buyout Research. The analysis finds no consistent evidence of higher job insecurity in LBOs as measured by workforce reduction practices (redundancy rates, job security/no‐compulsory redundancies policies and redundancy consultation), dismissal rates, labour use practices (non‐permanent employment contracts and outsourcing) and employees’ job security perceptions. Job insecurity is no higher in either current or former LBOs than elsewhere. Contrary to what might be expected, it is also no higher in private equity (PE)‐backed LBOs, management buy‐ins or high‐debt LBOs and there is only partial and weak evidence of higher job insecurity in short‐hold LBOs. Job insecurity is also no higher in perfect storm LBOs (PE‐backed management buy‐ins that are short‐holds with high‐debt). Concerns over the negative implications of LBOs for job security thus appear misplaced.     

Information-sharing in services for military personnel in transition to civilian life

An analysis of policy and practice documents on information-sharing in the transition of military personnel into civilian life finds (1) a complex transition pathway along which the responsibility for co-ordination of transition shifts from service providers to those in transition; (2) a lack of attention to operationalizing information-sharing for different service circumstances; (3) the potential for developing a framework for managing information-sharing; and (4) a need for further research to draw on the evidence of transitions and information-sharing in other policy sectors.     

The Credit Crisis and De Nova Mimicking in Security Analysis

The failure of the investment community in 2007 to foresee the systematic collapse of the credit default swap market significantly increased the complexity of security analysis and damaged the reputation of the security analyst community in general. submit that in response to the credit crisis, security analysts may have engaged in a de nova form of mimicking by increasing emphasis on general market factors and reducing emphasis on idiosyncratic factors in their valuations, driven by behavioral motives to achieve increased cost efficiency and avoid higher penalties for unfavorable outlier valuations. The result would be increased correlation among security valuations and therefore returns, and diminished benefits of diversification. We test this hypothesis by examining the patterns of security and portfolio returns surrounding the onset of the credit crisis in early 2007 and observe a significant postcrisis increase in the proportion of security and portfolio returns explained by market factors. The findings support the hypothesized shift in emphasis in security analyst valuation techniques, and provide results consistent with the hypothesized behavioral explanations.     

Cross-border private equity syndication: Institutional context and learning

Private equity (PE) has become an increasingly international phenomenon but there is a lack of research that looks at the process by which PE firms invest across borders. We aim to fill this gap in the literature by examining the role of institutional context and organizational learning as determinants of cross-border PE syndication. We examine these issues by studying the international expansion by later-stage UK PE investors into continental Europe over the period 1990 to 2006. Our results indicate that institutional context (in terms of the number of PE firms in the local environment and the presence of investment bankers in the local market) and organizational learning (in terms of the PE firm's experience in the host country; the PE firm's multinational experience; and the number of investment managers per portfolio company; but not the presence of local offices) are significantly related to the use of cross-border syndicates. Implications for theory and practice are suggested.     

Morgan Stanley Roundtable on The State of Global Private Equity

In this discussion led by Alan Jones, Morgan Stanley's head of Global Private Equity, the University of Chicago's Steve Kaplan begins by surveying 25 years of academic research on private equity. Starting with Kaplan's own Ph.D. dissertation on leveraged buyouts during the 1980s, finance academics have provided a large and growing body of studies documenting the ability of private equity firms to make “sustainable” (that is, maintained over a three‐ or four‐year period) improvements in the operating performance of their portfolio companies, whether operating abroad or in the U.S. Even more impressive, the findings of Kaplan's new study (with Tim Jenkinson of Oxford and Bob Harris of the University of Virginia) suggest that these improvements have been large enough to enable PE funds raised between 1990 and 2008 to deliver returns to their limited partners that have averaged 300 to 400 basis points higher per year than the returns to the S&P 500. And given the “persistence” of PE fund returns—the tendency of the funds of the same PE firms to show up in the top quartile of performers year after year—that Kaplan has documented in earlier work, the performance of private equity seems notably different from that of mutual funds and hedge funds, where there has been little if any consistency in the returns provided by the top performers. Following Kaplan's overview of the research, four representatives of today's leading private equity firms explore questions like the following:

• ? How do the best PE firms, after paying premiums to acquire their portfolio companies and collecting large management fees, provide such consistently high returns to their limited partners?
• ? How did PE portfolio companies perform during the last recession, when many popular business publications were predicting the death of private equity—and what, if anything, does that tell us about how private equity adds value?
• ? What can PE firms do to avoid, or at least limit the damage from, the overpricing and overleveraging that tend to occur near the end of the boom‐and‐bust cycle that appears to be a permanent feature of private equity?

As Jones notes in his opening comments, the practitioners' answers to such questions “should help investors distinguish between the alpha that the firms represented at this table have generated through active management from the ‘closet beta’ that critics say results when private equity firms simply create what amounts to a levered bet on the public equity markets.”     

What determines the performance of strategic alliance managers? Two lens model studies

Given the increasingly frequent call—often from macro, strategy researchers—for more micro-level probes into the drivers of strategic alliance performance, this article has responded to such a call by leveraging the organizational behavior (OB) and human resource (HR) literature on competencies. Based on two studies drawing on the lens model (Brunswik, 1954), we take on an important but little explored question: “What determines the performance of strategic alliance managers?” In Study 1 (a laboratory study), double system policy capturing results show a positive relationship between alliance competencies and performance judgments. In Study 2 (a field study), we investigate the evaluative behavior of alliance supervisors. Hierarchical linear modeling (HLM) results suggest that some structural, functional, and social competencies are evaluated as more important than other competencies in determining alliance managers’ performance.     

Chief Executive Officer Incentives,Monitoring, and Corporate Risk Management: Evidence From Insurance Use

Corporate governance and risk management issues have received prominent publicity in recent years following several major company failures such as Bear Stearns and Lehman Brothers. While prior studies have examined this issue within the context of derivatives’ trading, little is known regarding the linkage between corporate governance and alternative corporate risk management activities such as insurance. Using a detailed firm survey conducted by the World Bank (2004) , we examine the impacts of various governance monitoring mechanisms and chief executive officer (CEO) characteristics on the corporate insurance decision. Overall, our results suggest that both monitoring mechanisms and managerial incentives induce the corporate purchase of property insurance. However, the purchase of property insurance for managerial self‐interest is only prevalent in firms subject to lax monitoring, and the determinants of insurance purchases are more in line with the prediction of the economic theory in firms with strong monitoring. In addition, our study contributes a number of new insights into the determinants of corporate purchase of property insurance.     

Tour Booking: Do Travelers Respond to Tourism Accreditation and Codes of Ethics Initiatives?

Tourism and hospitality organizations are spending more time and money on corporate social responsibility (CSR) initiatives, but at the same time not fully understanding how such initiatives enhance travelers’ responses. This study investigates the impact of two CSR initiatives that have been widely adopted by many travel organizations: tourism accreditation and codes of ethics. A large-scale survey collected data on how potential travelers responded to an online tour brochure. The results showed that both accreditation and code of ethics information in a brochure have significant but varying impacts on perceived tour value, trust, and tour booking intention.     

GLOBAL EVIDENCE ON THE EQUITY RISK PREMIUM

The size of the equity risk premium—the incremental return that shareholders require to hold risky equities rather than risk-free securities—is a key issue in corporate finance. Financial economists generally measure the equity premium over long periods of time in order to obtain reliable estimates. These estimates are widely used by investors, finance professionals, corporate executives, regulators, lawyers, and consultants. But because the 20th century proved to be a period of such remarkable growth in the U.S. economy, estimates of the risk premium that rely on past market performance may be too high to serve as a reliable guide to the future.
The authors analyze a 103-year history of risk premiums in 16 countries and conclude that the U.S. risk premium relative to Treasury bills was 5.3% for that period—lower than previous studies suggest—as compared to 4.2% for the U.K. and 4.5% for a world index. But the article goes on to observe that the historical record may still overstate expectations of the future risk premium, partly because market volatility in the future may be lower than in the past, and partly because of a general decline in risk resulting from new technological advances and increased diversification opportunities for investors. After adjusting for the expected impact of these factors, the authors calculate forward-looking equity risk premiums of 4.3% for the U.S., 3.9% for the U.K., and 3.5% for the world index. At the same time, however, they caution that the risk premium can fluctuate over time and that managers should make appropriate adjustments when there are compelling economic reasons to think that expected premiums are unusually high or low.