Essays on private equity buyouts

Lavery, Paul (2020) Essays on private equity buyouts. PhD thesis, University of Glasgow.

Abstract

This thesis consists of three independent essays on the consequences of and market for private equity buyouts. The introduction provides a brief outline of the growth of buyout markets in recent decades and the conclusion summarises the main findings.

The first essay examines the exporting behaviour of buyout target firms relative to control firms. We build a data set of over 1,400 buyouts in the UK from 2004 to 2017 and using a difference-in-differences approach, estimate the effect of private equity ownership on target firms' exporting activities at the extensive and intensive margin, relative to a sample of carefully matched control firms. The results show that: (a) private equity ownership increases the probability of firms exporting (the extensive margin of trade); (b) private equity ownership increases the value of firms exports (the intensive margin of trade); (c) private equity ownership increases the exporting intensity of firms (the ratio of export sales-to-total sales). Our consequent findings indicate private equity investors' ability to alleviate financing constraints of companies, as our results are amplified where the target company is more likely to be in a constrained position. Along similar lines, target firms' exporting is found to have been more resilient during the global financial crisis. To explain our findings, we postulate that improvements to target firms' working capital management allows them to overcome the associated costs of exporting. Our results support this hypothesis: the working capital of buyout targets improves significantly relative to control firms.

In an attempt to better understand how banking sector shocks can be transmitted onto the real economy, the second essay examines bank-affiliated private equity buyouts and studies how portfolio companies respond to external shocks affecting their parent banks. In particular, we assess how the 2011 European Banking Authority (hereafter EBA) Capital Exercise impacted the portfolio companies of the private equity arms of affected and unaffected banks. Our results imply that the shock came with associated real effects: the portfolio companies associated with the private equity arms of affected banks experienced weaker investment and financing at the onset of the shock. These companies were consequently found to under-perform the portfolio companies of unaffected banks. The effects are heterogeneous in two ways: first, the negative effect on portfolio company performance is stronger for companies which were more likely to be constrained at the onset of the shock. Second, the effect is found to be stronger on portfolio companies whose private equity owner is less experienced.

The last essay investigates the importance of capital market development for international buyout activity. Given the evidence of the diverse range of industry- and firm-level benefits of buyout investment, studying the stimulants of an active buyout market merits attention. Robust to a battery of checks, our findings strongly suggest that well-developed stock and credit markets are an important driver of buyout activity. We show that that capital market development is more important to buyout investment relative to other types of international investment flows. Lastly, we underline the importance of countries' institutional environments for their buyout market activity. The positive effect of capital market development on buyout capital is significantly stronger in country-years with lower legal and political risk.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Keywords: Private equity buyouts, firm performance.
• Subjects: H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Accounting and Finance; College of Social Sciences > Adam Smith Business School > Economics
• Supervisor's Name: Spaliara, Dr. Marina-Eliza
• Date of Award: 2020
• Depositing User: Mr Paul Lavery
• Unique ID: glathesis:2020-82146
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 27 Apr 2021 15:16
• Last Modified: 27 Apr 2021 15:43
• Thesis DOI: 10.5525/gla.thesis.82146
• URI: https://theses.gla.ac.uk/id/eprint/82146