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Cross-Border LBOs, Human Capital, and Proximity: Value Addition through Monitoring in Private Equity Investments

Published online by Cambridge University Press:  12 February 2020

Thomas J. Chemmanur Open the ORCID record for Thomas J. Chemmanur [Opens in a new window] ,
Tyler J. Hull  and
Karthik Krishnan
Thomas J. Chemmanur*
Affiliation:
Chemmanur, thomas.chemmanur@bc.edu, Boston College Carroll School of Management
Tyler J. Hull
Affiliation:
Hull, tyler.hull@umb.edu, University of Massachusetts Boston College of Management
Karthik Krishnan
Affiliation:
Krishnan, k.krishnan@neunortheastern.edu, Northeastern University College of Business
*
Chemmanur (corresponding author), thomas.chemmanur@bc.edu
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Abstract

We show that cross-border leveraged buyout investments involving U.S. rather than non-U.S. private equity (PE) investors are more likely to have a successful exit (initial public offering or acquisition). Exogenous increases in effective proximity following the signing of “open sky agreements” between the United States and target firms’ home countries increases both the propensity of U.S. PE firms to invest in these firms and the value addition by these investors. We show that such increases in value addition by U.S. PE investors following proximity increases are at least partially due to better monitoring, facilitated by the more efficient allocation of experienced U.S. PE managers to cross-border deals.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 3 , May 2021 , pp. 1023 - 1063
Copyright
© Michael G. Foster School of Business, University of Washington 2020

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Footnotes

*

An earlier version of this paper was circulated under the title “Cross-Border LBOs, Human Capital, and Proximity: Evidence from a Natural Experiment.” We thank seminar participants at the Vanderbilt Conference on Private Equity, 2nd SUNY Albany PE Conference, Argentum Private Equity Conference, Financial Management Association Annual Meetings, European Finance Association Annual Meetings, and at Boston College, Northeastern University, NHH (The Norwegian School of Economics), and BI (Bedriftøkonomisk Institutt) Norwegian Business School. We also thank Rajesh Agarwal, Onur Bayar, Na Dai, Xavier Giroud, Jayant Kale, Laura Lindsey, Alexander Ljungqvist, Robert Taggart, Hassan Tehranian, Xuan Tian, and Boris Valee for helpful comments. We thank Mergermarket Ltd. for providing data on private equity exits and private equity managers. Chemmanur acknowledges financial support from a Hillenbrand Distinguished Fellowship. Hull thanks the Finansmarkedsfondet and the Argentum Private Equity Center for their generous research support. Any errors or omissions remain our responsibility.

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