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Drivers of holding period firm-level returns in private equity-backed buyouts

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  • Valkama, Petri
  • Maula, Markku
  • Nikoskelainen, Erkki
  • Wright, Mike

Abstract

We extend the research on the drivers of holding period firm-level returns in private equity (PE)-backed buyouts by examining deal-, industry-, and macroeconomic-level drivers and their interaction. To conduct our study, we use a comprehensive and hand-collected dataset covering exited buyouts in the UK between 1995–2004, and we control for sample selection and investment risk. Our study shows that governance variables generally have a limited role in driving value creation but that use of a ratchet is positively related to both equity and enterprise value returns; we also find that leverage has a positive impact on median and top-quartile equity returns. Moreover, returns are driven by the size of the buyout and the acquisitions made during the holding period. With respect to macroeconomic and industry level factors, industry growth particularly drives buyout returns. However, the effect of industry growth is not uniform; its influence is particularly strong in insider-driven and divisional buyouts, in addition to top-quartile transactions.

Suggested Citation

  • Valkama, Petri & Maula, Markku & Nikoskelainen, Erkki & Wright, Mike, 2013. "Drivers of holding period firm-level returns in private equity-backed buyouts," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2378-2391.
    • Handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2378-2391
    DOI: 10.1016/j.jbankfin.2013.01.042
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    Cited by:

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    2. 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.
    3. Sheeba Kapil & Vrinda Rawal, 2023. "Systematic Literature Review of Private Equity Determinants: Status, Evidence and Open Issues," Vision, , vol. 27(5), pages 567-581, November.
    4. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Other publications TiSEM 573ebdd5-a720-4110-8ed1-e, Tilburg University, School of Economics and Management.
    5. Amess, Kevin & Stiebale, Joel & Wright, Mike, 2015. "The impact of private equity on firms' innovation activity," DICE Discussion Papers 184, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Paglia, John K. & Harjoto, Maretno A., 2014. "The effects of private equity and venture capital on sales and employment growth in small and medium-sized businesses," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 177-197.
    7. Hammer, Benjamin & Marcotty-Dehm, Nikolaus & Schweizer, Denis & Schwetzler, Bernhard, 2022. "Pricing and value creation in private equity-backed buy-and-build strategies," Journal of Corporate Finance, Elsevier, vol. 77(C).
    8. 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.

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    More about this item

    Keywords

    Private equity; Management buyout; Systematic risk;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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