Availability of Credit to Small Firms Young and Old: Evidence from the Surveys of Small Business Finances
The availability of credit is one of the most important issues facing small businesses, and is especially vexing for young and fast-growing firms that need new capital to finance growth. In the United States, small businesses produce about half of the total GDP in the U.S., employ about half of all private-sector U.S. workers, and have accounted for almost two-thirds of all job growth between 1993 and 2008. Therefore, it is critically important to understand the issue of credit availability to small firms. This article analyzes data from a series of four nationally representative samples of small U.S. firms conducted by the Federal Reserve Board over two decades. It explores differences in younger and older firms, using ten years as the demarcation point between young and old businesses. Younger firms seeking to grow have different credit needs than older, more mature firms. Many distinguish entrepreneurial firms from other small firms by their age. The article briefly describes the Surveys for Small Business Finances (SSBFs); summarizes two sets of studies that use the SSBFs to analyze the use of credit by small firms; and presents new evidence from the SSBFs on differences between young and old small firms, with a focus on the availability of credit.
Christian Andres, Andre Betzer, and Jasmin Gider
This article discusses global buyouts. It tries to explain the international differences in buyout markets across countries, but is not concerned with the performance and investment strategies on the fund level. The first section takes a look at the buyout activity of different countries, and then it forms a relationship between buyouts, the institutional environment, and the quality of corporate governance. The following section reviews the present empirical evidence of buyout strategies that are pursued in various geographical regions. Finally, this article tries to relate the findings to the institutional environments.
This article studies a sample of 265 buyouts that were conducted from 1997 until 2004. These buyouts involved companies in the United Kingdom, Italy, France, Belgium, Spain, Germany, and the Netherlands. It explores the extent to which buyouts affect the performance of target companies for a three-year period around the deal date. It then assesses whether such operations encourage or limit the innovation activity of acquired firms. Finally, this article discusses the effects of private equity investments on firm growth. An assessment of the total innovative effort of the sample firms is also included.
Cécile Carpentier, Jean-François L'Her, and Jean-Marc Suret
This article discusses the way small Canadian listed firms discriminate between competing selling devices to lessen their issuance costs. It studies the choice between private placements (PPs) and public seasoned equity offerings (SEOs) for entrepreneurial firms that can decide between these two types of financing. It also examines the institutional setting in the Canadian context and notes its differences from the one that is described in most private investment in public equity (PIPE) studies. One section identifies the two primary constituents of the costs of private and public equity issues and the factors that potentially influence them. This article also provides data and descriptive statistics that are related to Canadian equity issuers.
Kasper Meisner Nielsen
This article discusses the intermediation model and focuses on direct investments by institutional investors. It also introduces “indirect investments,” which refer to investments that are made through funds of funds. The first section presents some evidence of direct investments in private firms from various countries around the world. It then discusses the relevant issues that surround direct investments. This article determines that there are implications for the governance and success connected to the use of different private equity structures.
This article addresses the question of whether the private equity fund-of-funds managers provide value or not. It studies the value added by funds of funds, and suggests that fund-of-funds managers do not appear to perform better on a risk-adjusted basis than their peers. This article also tries to determine if these managers provide the private equity investor with value. It also considers if the institutional investors should invest in getting the necessary connection that would help them directly access private equity investments.
Brent Goldfarb, David Kirsch, and April Shen
How are new industries financed? Specifically, for industries pioneered by entrepreneurial firms, where do entrepreneurs acquire the initial resources to start and grow their firms? This article reviews the literature on the role of finance in the emergence of new industries. It begins with a brief review of the central problems of finance of the high-risk, high-growth ventures that often play an important role during the emergence of new industries. It then presents several mini-case studies on new industries. It explores the ways that public markets and, more recently, venture capital limited partnerships have altered the industry emergence process, and thereby evaluates the literature's view of the role of these institutional arrangements.
Douglas Cumming and Na Dai
This article discusses fund size, limited attention, and the valuation of venture capital- and private equity-backed firms. It determines that decreasing performance and distorted valuations are associated with larger private equity funds, and determine that these effects are due to the limited attention of fund managers. Some of the concepts discussed in this article include ordinary least squares (OLS) regressions and portfolio companies. It also shows that the most reputable private equities pay a lower price for portfolio companies of similar quality and that fund size and valuations of portfolio companies have a convex relationship. A relevant positive association between limited attention and valuation is also noted. This article concludes that fund size is generally positively associated with the negotiation power of private equity.
Raj Aggarwal and John W. Goodell
This chapter explores the relationship between governance transparency and institutions of capitalism. It considers two major components of governance transparency in a country: disclosure regarding self-dealing and disclosure regarding ultimate corporate ownership. It also examines the effects of governance transparency on some of the fundamental mechanisms of capitalism, including transaction costs and the institutions of business exchange. Some evidence of the importance of governance transparency in the structure of capital markets is presented. The chapter reviews how governance transparency is measured and how it influences the culture of equity, the cost of equity, participation in stock markets, and a nation’s financial architecture.
Industry Concentration, Syndication Networks, and Competition in the U.K. Private Equity Market for Management Buyouts
Miguel Meuleman and Douglas Michael Wright
This article considers industry concentration, syndication networks, and competition in the U.K. private equity market for management buyouts. It provides empirical evidence of the effect of industry market structures on syndicate relationships. This article also studies interfirm cooperation through syndication in the private equity market and determines if this decreases the extent of competition and subsequently affects the prices private equity firms are willing to pay to get buyout targets.
The focus of this chapter is the racing betting market, notably the gallops, harness, and greyhounds. A key issue is whether the presence of betting insiders at the track implies that their presence is easily measured. It is shown that this is a function of the microstructure of the particular betting market. In some markets, the impact of insider trading is readily measured, while in others, it has hitherto proven virtually impossible. The different microstructures of betting markets and the implications for insider trading and its measurement are considered.
This article introduces the concept of private equity, which typically refers to the asset class of companies' equity securities that are not publicly traded on a stock exchange. It studies the private equity industry and the number of private equity investments. The rest of this article provides a summary of work that provides more information on the various features of private equity, such as its role in private acquisitions and the private equity contract. Several graphs on the private equity investments made in the United States, capital overhang for private equity funds, and the holding period from buyout to exit are also included.
Grant Fleming and Mai Takeuchi
This article looks at Asia's leveraged buyouts and control-oriented investments. It describes buyout activity throughout Asia along with the governance mechanisms that are used to create value. It studies the institutional development of Asian LBO markets while referring to historical comparative studies. It then analyzes the financial returns to Asian LBOs and growth investments using data from returns to going-private transactions and realized private equity investments. This article concludes with evidence on governance and operational change in Asian LBOs and features a new data set that is composed of company-level data across all major Asian economies.
Thomas Poulsen and Steen Thomsen
This article analyzes Danish evidence on the limitations of private equity, which show that in some cases, the real effects of private equity are not always desirable. It argues that the expropriation of stakeholders—particularly employees that have made firm-specific investments—can be a suboptimal strategy that would result in counterproductive and ultimately value-destroying behavior. It then discusses the investment decision rule and the buyout of Royal Scandinavia, a Danish art industry conglomerate. This article concludes with a summary of several lessons, which serve as propositions for future research and practice.
Götz Müller and Manuel Vasconcelos
This article studies the return effects seen on listed private equity funds, which are the result of exit events of portfolio companies. It shows that private equity as an asset class has long been connected to sophisticated investors, including high-net-worth institutions or individuals. It then hypothesizes that exit announcements cause significantly positive share price reactions and provides data that was gathered from all exit announcements made by firms. This article determines that the hypothesis is true, and that it is due to the fact that a better price may be achieved in an IPO.
Matthias Huss and Heinz Zimmermann
This article takes a look at the development of listed private equity funds and the empirical data that shows the performance of the asset class. It shows that while the idea of listed private equity is not new, it is still relatively unfamiliar to academics and investors alike. It identifies some of the challenges posed by traditional private equity, and then demonstrates how listed private equity deals with—and somehow resolves—some limitations. This article also discusses asset allocation, investment activities in listed private equity, and private equity indices.
Dennis C. Mueller
This article begins by reviewing some stylized facts. These facts pose some puzzling questions that must be answered, if we are to understand the role mergers play in capitalist systems. It then turns to the evidence of their effects on profitability, efficiency, and shareholder wealth. This evidence is used to resolve some of the questions raised by the stylized facts about mergers.
Mark Mietzner and Denis Schweizer
This article analyzes a detailed data set of publicly listed companies in Germany. It considers the reactions of the short-term capital market to announcements that private equity funds are targeting publicly listed companies, as well as the related effects for industry rivals. It lists the differences between new institutional investors and traditional shareholders, with regards to their skill sets, their ability to become successful active shareholders, and their perceptions. This article also reviews previous empirical studies.
This article focuses on the structure, governance, and performance of leveraged buyouts in Italy. It defines the term “private equity” as an expansion financing of existing firms. It notes that Italy has previously experienced periods of exhausting regulation over such transactions. The discussion analyzes the governing and financing behavior used by private equity investors in order to manage investment risks and related agency problems. From there it turns to a study of how venture capitalists affect the governance of their portfolio companies within the private equity market of Italy.
This article records the development of the private equity market in China. It presents some data on the structure, governance, and performance of China's private equity. It then notes the possibility that Asia may become increasingly dominant and one of the most relevant economic regions in the world as the twenty-first century progresses. It also studies the extent to which the changes in the private equity-related laws and regulations in China have affected the development of private equity in China. This article shows that since the Chinese capital markets still need to develop completely, private equity has mostly been an offshore activity. The capital markets for growth companies in China are also analyzed.