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Article
Publication date: 21 April 2010

Masaya Ishikawa and Hidetomo Takahashi

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the…

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1849

Abstract

This study examines the relationship between managerial overconfidence and corporate financing decisions by constructing proxies for managerial overconfidence based on the track records of earnings forecasts in Japanese listed firms. We find that managers have the stable tendency to forecast overly upward earnings compared to actual ones and that their upward bias decreases the probability of issuing equity in the public market by about 4.7 percent per one standard error, which economically has the strongest impact on financing decisions. This tendency is observed when we employ alternative measures for managerial overconfidence and other model specifications. However, in private placements, the choice to offer equity is not always avoided by managers. This implies that managers place private equity with the expectation of the certification effect

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Review of Behavioural Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1940-5979

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Book part
Publication date: 7 October 2011

Rohit Pradhan and Robert Weech-Maldonado

Private equity has acquired multiple large nursing home chains within the past few years; by 2007, it owned 6 of the 10 largest chains. Despite widespread public and…

Abstract

Private equity has acquired multiple large nursing home chains within the past few years; by 2007, it owned 6 of the 10 largest chains. Despite widespread public and policy interest, evidence on the purported impact of private equity on nursing home performance is limited. In our review, we begin by briefly reviewing the organizational and environmental changes in the nursing home industry that facilitated private equity investments. We offer a conceptual framework to hypothesize the relationship between private equity ownership and nursing home performance. Finally, we offer a research agenda focused on the important parameters of nursing home performance: financial performance, and quality of care.

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Biennial Review of Health Care Management
Type: Book
ISBN: 978-0-85724-714-8

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Article
Publication date: 10 November 2014

Ann-Kristin Achleitner, Christian Figge and Eva Lutz

The purpose of this paper is to identify specific drivers of value creation in secondary buyouts. While this type of private equity deal has risen in importance in recent…

Abstract

Purpose

The purpose of this paper is to identify specific drivers of value creation in secondary buyouts. While this type of private equity deal has risen in importance in recent years, it is not yet well understood. Through an in-depth analysis of the acquisition of Brenntag by BC Partners, we develop propositions on the value creation profile of secondary buyouts.

Design/methodology/approach

We use a single case study design to explore the information-rich context of a secondary buyout. The Brenntag case epitomizes the development of a company from forming part of a large conglomerate to being private-equity owned after the primary and secondary buyout, to its final disposition of public listing. Our analysis is based on ten semi-structured interviews with key protagonists and observers, as well as analysis of primary company data and additional secondary data sources.

Findings

We propose that even if the investment management and monitoring skills of the primary and secondary private equity group are similar, there is still potential to realize operational improvements in a secondary buyout, due to either early exit of the primary private equity group or measures that further enhance management incentives. In addition, the Brenntag case shows that low information asymmetries can lead to higher leverage and that opportunities for multiple expansions are limited in secondary buyouts.

Originality/value

While a secondary buyout has become a common exit route in recent years, we are the first to undertake an in-depth case analysis of a secondary buyout. Our study helps researchers and practitioners enhance their understanding of drivers behind the value creation profile of secondary buyouts.

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Qualitative Research in Financial Markets, vol. 6 no. 3
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 1 January 2003

John H. Walsh

In the late 1990s, the market for private equity securities (hereinafter “private equity market”) was booming. From quarter to quarter, the number of venture capital deals…

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516

Abstract

In the late 1990s, the market for private equity securities (hereinafter “private equity market”) was booming. From quarter to quarter, the number of venture capital deals and the amount invested rose dramatically. Certainly, much of this attention and excitement resulted from the extraordinary market gains experienced by some investors in private equity securities (hereinafter “private equities”). For example, in a book published in 2000, Randall E. Stross described a private equity investment that grew in value by 100,000 percent in less than two years. Today, the extraordinary gains of the late 1990s have subsided. Indeed, some commentators now describe market conditions as a “brutal hit.” The number of deals and the dollars invested are down, and as one commentator put it, there has been an “exodus of momentum investors.” Nonetheless, private equities remain an important alternative investment. Private equities also remain an important compliance area for broker‐dealers and investment advisers. This article reviews some of the compliance issues that could arise in the current environment. Specifically, it focuses on the types of issues that are likely to arise during an examination by the staff of the Securities and Exchange Commission (“SEC” or “Commission”). The article begins with a quick summary of the circumstances under which SEC examiners review broker‐dealers’ and investment advisers’ activities in the private equity market. Next it reviews recent SEC enforcement actions involving private equities and some of the compliance lessons that can be drawn from the cases. Finally, it discusses an examination initiative relating to private equities that the SEC currently has underway. It concludes that private equities remain an important compliance area and an important focus of the SEC’s examination program.

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Journal of Investment Compliance, vol. 4 no. 1
Type: Research Article
ISSN: 1528-5812

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Book part
Publication date: 26 April 2011

Jaehoon Kim

Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a…

Abstract

Recent corporate scandals have led to legislative and regulatory responses that significantly increase the monitoring costs and other burdens of becoming or remaining a public corporation. As a result, there has been a substantial increase in going-private transactions, particularly among smaller public companies. Acquisitions and minority equity positions that allow large corporations to join with smaller companies have also increased. The pressures to go private are not entirely new, however. This chapter offers evidence that the current wave of post-Sarbanes–Oxley (SOX) restructuring via private equity firms is not a radical shift, but a continuation of already-established relationships between drops in the broad index of publicly traded equities, and subsequent increases in going-private activity (with evidence extending back more than two decades). When publicly traded equity falls, two things make major contribution to an increase in going-private transactions:•With equity prices down, it becomes cheaper to buy back the stock.•For investors with cash reserves holding for the arrival of new opportunities, taking a company private at reduced cost offers an attractive opportunity.

The evidence also suggests, though, that the passage of SOX is associated with an increased intensity in this longer-standing relationship (in other words, SOX has strengthened the older trend).

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Research in Finance
Type: Book
ISBN: 978-0-85724-541-0

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Article
Publication date: 21 September 2012

Sazali Abidin, Krishna Reddy and Liehui Chen

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising…

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1362

Abstract

Purpose

Since the initiation of the share split reform by the Chinese Securities Regulatory Commission (CSRC) in 2005, the private placement has become the major source of raising equity after IPO. The purpose of this paper is to investigate why listed firms in China prefer private placements compared to other options of raising capital.

Design/methodology/approach

The ordinary least squares regression, the piecewise regression and the cross‐sectional regression analysis were undertaken to investigate the determinants and characteristics of the seasoned‐equity offerings announcement effects. Probit regression analysis was taken to estimate the probability of a firm choosing private placements.

Findings

The authors find positive significant announcement abnormal returns for private placement. The findings also indicate that operating performance deteriorates immediately after announcement and poor operating performance is more likely to be contributed by large size portfolios, which suggests size effect.

Research limitations/implications

The paper's evidence contributes to an understanding of the wider implication of the share split reform undertaken by the CSRC.

Practical implications

The paper provides insights for policy makers in China and around the world who have and wish to adopt similar practices within their jurisdictions. Similar research can be conducted in other emerging markets to enable better understanding and implications of seasoned equity offerings on firm financial performance.

Originality/value

The paper is novel in regard to the data and the wider research paradigm used.

Details

International Journal of Managerial Finance, vol. 8 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 31 August 2014

IK Song, Ji Eun Kang and Chang Hyun Yun

This study investigates the private equity funds’ performances and persistence by fund type. Diversification benefit exists between public equity and private equity and…

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3

Abstract

This study investigates the private equity funds’ performances and persistence by fund type. Diversification benefit exists between public equity and private equity and among different types of private equity funds. The net IRR of private equity funds depends on fund type, economic growth, stock market performance, inflation and interest rate. Fund performance was negatively correlated with capital inflow to private equity market and fund size. Fund size and series are positively correlated. Performance persistency exists in private equity fund managers. Fund type is very important factor in analyzing private equity fund performance and persistency.

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Journal of Derivatives and Quantitative Studies, vol. 22 no. 3
Type: Research Article
ISSN: 2713-6647

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Article
Publication date: 20 July 2010

Ilkka Tomperi

This paper aims to focus on the performance of private equity real estate funds. Since many institutional investors have special programs to invest with first time…

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1683

Abstract

Purpose

This paper aims to focus on the performance of private equity real estate funds. Since many institutional investors have special programs to invest with first time managers, or emerging fund managers, it also seeks further evidence on how persistent the performance of real estate funds is and how the growth in fund size affects the realised returns of a fund.

Design/methodology/approach

The analyses performed are based on a large global sample of value‐added and opportunistic private real estate funds. Different model specifications are used to study the fund and sponsor‐related factors' correlation with fund performance.

Findings

It is shown that the realised performance is positively correlated with fund size but negatively correlated with the sequence number of the fund supporting the fact that emerging managers are likelier to achieve good returns. The data also reveal trends in fund performance and the growth of the fund size. Evidence from private equity buy‐out funds has also shown that better performing fund managers are likely to raise follow‐on funds and often larger funds than poorly performing fund managers which is also confirmed by the findings of this paper. There is also an evidence that top‐performing funds do not grow proportionally as much as the average funds.

Research limitations/implications

Actual datasets used in the regression models are often limited by exclusion of immature funds to enhance reliability of results.

Originality/value

This paper expands the recent studies on private equity to private real estate, an area that has experienced substantial growth during the past ten years.

Details

Journal of European Real Estate Research, vol. 3 no. 2
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 6 March 2019

Daniel Huerta and Mark Pyles

The purpose of this paper is to describe an investment program that offers students with the opportunity to simultaneously manage a private asset fund and a public asset…

Abstract

Purpose

The purpose of this paper is to describe an investment program that offers students with the opportunity to simultaneously manage a private asset fund and a public asset fund. The program has been in operation since 2013 and has made significant progress in student placement and connectivity with local, regional and national financial firms.

Design/methodology/approach

The authors describe the structure, methods used and challenges encountered in this dual portfolio environment and add relevant thoughts for discussion. The authors discuss potential conflicts of interests that may arise in managing a private equity portfolio, the concern of proper deal flow, the issue of the investment timeline when investing in private equity and the problems encountered when measuring private equity performance.

Findings

While public asset funds have been around for decades and are relatively well accepted throughout all levels and types of higher education institutions. The uses of private equity funds, though not unheard of, are much less prevalent. Allowing the same group of students to manage both type of portfolios is relatively unique and provides with a more comprehensive learning experience.

Originality/value

A primary distinguishing attribute of this program is that accepted students are given the opportunity to simultaneously manage both public and private equity assets throughout an academic year. The goal is to create a comprehensive portfolio management program that replicates a changing investment management environment where private equity is an increasingly significant asset class.

Details

Managerial Finance, vol. 46 no. 5
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 25 November 2013

Christian Brause

The paper's aim is to analyze and assess the importance of a recent US Court of Appeals for the First Circuit decision in the case of Sun Capital Partners III LP v. New

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171

Abstract

Purpose

The paper's aim is to analyze and assess the importance of a recent US Court of Appeals for the First Circuit decision in the case of Sun Capital Partners III LP v. New England Teamsters and Trucking Industry Pension Fund with respect to the court's conclusion that a private equity fund constitutes a “trade or business” for purposes of the ERISA multiemployer pension withdrawal liability and that, therefore, the fund could, under a “piercing the veil” type of approach, be held liable for the ERISA withdrawal liability of a bankrupt portfolio company.

Design/methodology/approach

The paper provides historical background on termination and withdrawal liability under ERISA; explains the facts of the Sun Capital case; and offers preliminary reflections on the “investment plus” approach in ERISA context, the significance of the offset mechanism, why the Sun Capital decision is a significant victory for the Pension Benefit Guaranty Corporation, the liability of one portfolio company for the pension obligations of other portfolio companies owned by the same private equity fund, potential unintended consequences for tax-advantaged benefit plans of portfolio companies; the possibility that different pension plans at different portfolio companies may violate non-discrimination rules, the application of Sun Capital beyond ERISA, and the potential effect of this ruling on taxation of carried interest.

Findings

The employer and all “trades or businesses” in its “controlled group, including, under certain circumstances, a private equity fund, are liable for the employer's share of unfunded pension liabilities if the employer withdraws from a multi-employer defined-benefit pension plan.

Originality/value

Practical guidance from experienced financial services lawyers is given in the paper.

Details

Journal of Investment Compliance, vol. 14 no. 4
Type: Research Article
ISSN: 1528-5812

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