IDEAS home Printed from https://ideas.repec.org/a/bla/finmgt/v50y2021i1p169-202.html
   My bibliography  Save this article

Institutional influence on syndicate structure and cross‐border leveraged buyouts

Author

Listed:
  • Chen Liu
  • Lynnette Purda
  • Hui Zhu

Abstract

We explore the extent to which differences in countries’ formal and informal institutions reduce cross‐border leveraged buyout transactions and the potential influence these same institutions have on how private equity (PE) investors choose to enter these transactions. Although institutional differences have frequently been viewed as barriers to cross‐border investment, we find evidence that these same differences may motivate a PE firm's decision to enter the transaction with a syndicate of firms rather than undertaking the transaction on their own. Cultural differences between a PE firm and the target nation are significantly related to the choice to enter the deal via a multinational syndicate. The varying nationalities within the syndicate contribute to enhanced familiarity, with average institutional distances between the syndicate and target firms being significantly lower than for single‐PE‐led deals. Overall, deals undertaken by syndicates are more likely to be successfully completed and require less time in negotiation. These results persist even after accounting for selection bias with regard to target country choice. We explore whether other features of the syndicate are responsible for improved deal outcomes, such as repeated transactions with the same partners, but find no evidence that this is the case.

Suggested Citation

  • Chen Liu & Lynnette Purda & Hui Zhu, 2021. "Institutional influence on syndicate structure and cross‐border leveraged buyouts," Financial Management, Financial Management Association International, vol. 50(1), pages 169-202, March.
  • Handle: RePEc:bla:finmgt:v:50:y:2021:i:1:p:169-202
    DOI: 10.1111/fima.12315
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/fima.12315
    Download Restriction: no

    File URL: https://libkey.io/10.1111/fima.12315?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ulf Axelson & Tim Jenkinson & Per Strömberg & Michael S. Weisbach, 2013. "Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts," Journal of Finance, American Finance Association, vol. 68(6), pages 2223-2267, December.
    2. Abhirup Chakrabarti & Will Mitchell, 2016. "The role of geographic distance in completing related acquisitions: Evidence from U.S. chemical manufacturers," Strategic Management Journal, Wiley Blackwell, vol. 37(4), pages 673-694, April.
    3. Jan Johanson & Jan-Erik Vahlne, 2009. "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(9), pages 1411-1431, December.
    4. Hui Zhu & Kelly Cai, 2014. "Cultural Distance And Bond Pricing: Evidence In The Yankee And Rule 144a Bond Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(3), pages 357-384, September.
    5. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2005. "Culture, Law, and Corporate Governance," International Review of Law and Economics, Elsevier, vol. 25(2), pages 229-255, June.
    6. Daniel Hain & Sofia Johan & Daojuan Wang, 2016. "Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust," Journal of Business Ethics, Springer, vol. 138(4), pages 743-764, November.
    7. Officer, Micah S. & Ozbas, Oguzhan & Sensoy, Berk A., 2010. "Club deals in leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 98(2), pages 214-240, November.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
    10. Claudia Champagne & Lawrence Kryzanowski, 2008. "The Impact of Past Syndicate Alliances on the Consolidation of Financial Institutions," Financial Management, Financial Management Association International, vol. 37(3), pages 535-570, September.
    11. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2003. "People's opium? Religion and economic attitudes," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 225-282, January.
    12. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September.
    13. Viral V. Acharya & Oliver F. Gottschalg & Moritz Hahn & Conor Kehoe, 2013. "Corporate Governance and Value Creation: Evidence from Private Equity," The Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 368-402.
    14. Stephen S. Golub, 2009. "Openness to Foreign Direct Investment in Services: An International Comparative Analysis," The World Economy, Wiley Blackwell, vol. 32(8), pages 1245-1268, August.
    15. Karolyi, G. Andrew & Liao, Rose C., 2010. "What is Different about Government-Controlled Acquirers in Cross-Border Acquisitions?," Institutions and Markets Papers 60686, Fondazione Eni Enrico Mattei (FEEM).
    16. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2010. "Financial Institutions and Markets across Countries and over Time: The Updated Financial Development and Structure Database," The World Bank Economic Review, World Bank, vol. 24(1), pages 77-92, January.
    17. Kai Li & Dale Griffin & Heng Yue & Longkai Zhao, 2011. "National culture and capital structure decisions: Evidence from foreign joint ventures in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 477-503, May.
    18. Demiroglu, Cem & James, Christopher M., 2010. "The role of private equity group reputation in LBO financing," Journal of Financial Economics, Elsevier, vol. 96(2), pages 306-330, May.
    19. Ilir Haxhi & Hans van Ees, 2010. "Explaining diversity in the worldwide diffusion of codes of good governance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 710-726, May.
    20. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1095-1131.
    21. Cressy, Robert & Munari, Federico & Malipiero, Alessandro, 2007. "Playing to their strengths? Evidence that specialization in the private equity industry confers competitive advantage," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 647-669, September.
    22. Quan Li & Tatiana Vashchilko, 2010. "Dyadic military conflict, security alliances, and bilateral FDI flows," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(5), pages 765-782, June.
    23. Gompers, Paul & Kaplan, Steven N. & Mukharlyamov, Vladimir, 2016. "What do private equity firms say they do?," Journal of Financial Economics, Elsevier, vol. 121(3), pages 449-476.
    24. Stephen S. Golub, 2003. "Measures of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 85-116.
    25. René M. Stulz, 2007. "The Limits of Financial Globalization," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 8-15, January.
    26. G. Andrew Karolyi & Rose C. Liao, 2010. "What is Different about Government-Controlled Acquirers in Cross-Border Acquisitions?," Working Papers 2010.38, Fondazione Eni Enrico Mattei.
    27. Karolyi, G. Andrew, 2016. "The gravity of culture for finance," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 610-625.
    28. Garry D. Bruton & Vance H. Fried & Sophie Manigart, 2005. "Institutional Influences on the Worldwide Expansion of Venture Capital," Entrepreneurship Theory and Practice, , vol. 29(6), pages 737-760, November.
    29. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2010. "The worldwide governance indicators : methodology and analytical issues," Policy Research Working Paper Series 5430, The World Bank.
    30. Meuleman, Miguel & Wright, Mike, 2011. "Cross-border private equity syndication: Institutional context and learning," Journal of Business Venturing, Elsevier, vol. 26(1), pages 35-48, January.
    31. Ahern, Kenneth R. & Daminelli, Daniele & Fracassi, Cesare, 2015. "Lost in translation? The effect of cultural values on mergers around the world," Journal of Financial Economics, Elsevier, vol. 117(1), pages 165-189.
    32. Mariassunta Giannetti & Yishay Yafeh, 2012. "Do Cultural Differences Between Contracting Parties Matter? Evidence from Syndicated Bank Loans," Management Science, INFORMS, vol. 58(2), pages 365-383, February.
    33. Jun-Koo Kang & Jin-Mo Kim, 2010. "Do foreign investors exhibit a corporate governance disadvantage? An information asymmetry perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(8), pages 1415-1438, October.
    34. Miguel Meuleman & Andy Lockett & Sophie Manigart & Mike Wright, 2010. "Partner Selection Decisions in Interfirm Collaborations: The Paradox of Relational Embeddedness," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 995-1019, September.
    35. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," The World Bank Economic Review, World Bank, vol. 14(3), pages 597-605, September.
    36. Boone, Audra L. & Mulherin, J. Harold, 2011. "Do private equity consortiums facilitate collusion in takeover bidding?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1475-1495.
    37. Aviad Pe'Er & Oliver Gottschlag, 2011. "Red and Blue: the relationship between the institutional context and the performance of leveraged buyout investments," Post-Print hal-00631579, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pascal Gantenbein & Axel Kind & Christophe Volonté, 2019. "Individualism and Venture Capital: A Cross-Country Study," Management International Review, Springer, vol. 59(5), pages 741-777, October.
    2. Quentin Dupont & Jonathan M. Karpoff, 2020. "The Trust Triangle: Laws, Reputation, and Culture in Empirical Finance Research," Journal of Business Ethics, Springer, vol. 163(2), pages 217-238, May.
    3. Hammer, Benjamin & Knauer, Alexander & Pflücke, Magnus & Schwetzler, Bernhard, 2017. "Inorganic growth strategies and the evolution of the private equity business model," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 31-63.
    4. Leonardo M. Klüppel & Lamar Pierce & Jason A. Snyder, 2018. "Perspective—The Deep Historical Roots of Organization and Strategy: Traumatic Shocks, Culture, and Institutions," Organization Science, INFORMS, vol. 29(4), pages 702-721, August.
    5. Massa, Massimo & li, zhe & xu, niahang & Zhang, Hong, 2016. "The Impact of Sin Culture: Evidence from Earning Management and Alcohol Consumption in China," CEPR Discussion Papers 11475, C.E.P.R. Discussion Papers.
    6. Kostas Pappas & Alice Liang Xu, 2023. "Do foreign lenders' national cultures affect loan pricing?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2006-2036, April.
    7. Paul Brockman & Sadok El Ghoul & Omrane Guedhami & Ying Zheng, 0. "Does social trust affect international contracting? Evidence from foreign bond covenants," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 0, pages 1-34.
    8. Benjamin Hammer & Heiko Hinrichs & Bernhard Schwetzler, 2018. "Does culture affect the performance of private equity buyouts?," Journal of Business Economics, Springer, vol. 88(3), pages 393-469, May.
    9. Chui, Andy C.W. & Kwok, Chuck C.Y. & (Stephen) Zhou, Gaoguang, 2016. "National culture and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 69(C), pages 1-19.
    10. Christophe Volonté, 2015. "Culture and Corporate Governance: The Influence of Language and Religion in Switzerland," Management International Review, Springer, vol. 55(1), pages 77-118, February.
    11. Arouri, Mohamed & Boubaker, Sabri & Grais, Wafik & Grira, Jocelyn, 2018. "Rationality or politics? The color of black gold money," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 62-76.
    12. Ang, James & Knill, April & Mauck, Nathan, 2017. "Cross-border opportunity sets: An international empirical study based on ownership types," Global Finance Journal, Elsevier, vol. 33(C), pages 1-26.
    13. Pevzner, Mikhail & Xie, Fei & Xin, Xiangang, 2015. "When firms talk, do investors listen? The role of trust in stock market reactions to corporate earnings announcements," Journal of Financial Economics, Elsevier, vol. 117(1), pages 190-223.
    14. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    15. Daniel Hain & Sofia Johan & Daojuan Wang, 2016. "Determinants of Cross-Border Venture Capital Investments in Emerging and Developed Economies: The Effects of Relational and Institutional Trust," Journal of Business Ethics, Springer, vol. 138(4), pages 743-764, November.
    16. Lesmeister, Simon & Limbach, Peter & Goergen, Marc, 2022. "Trust and monitoring," Journal of Banking & Finance, Elsevier, vol. 143(C).
    17. Paul Brockman & Sadok El Ghoul & Omrane Guedhami & Ying Zheng, 2022. "Does social trust affect international contracting? Evidence from foreign bond covenants," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(6), pages 1011-1044, August.
    18. Holderness, Clifford G., 2017. "Culture and the ownership concentration of public corporations around the world," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 469-486.
    19. Georgieva, Dobrina & Jandik, Tomas & Lee, Wayne Y., 2012. "The impact of laws, regulations, and culture on cross-border joint ventures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 774-795.
    20. Lievenbrück, Martin & Schmid, Thomas, 2014. "Why do firms (not) hedge? — Novel evidence on cultural influence," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 92-106.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:finmgt:v:50:y:2021:i:1:p:169-202. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/fmaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.