Private Equity Performance Under Extreme Regulation

Abstract:     
History shows that extreme regulation and prohibition reduce supply of capital and raise returns (i.e., drugs, diamonds). However, for value-added investors such as private equity (PE) funds, extreme regulation also reduces the quality of capital and fund involvement. The net effect on returns is therefore ambiguous and heretofore not studied. With a new unique dataset, this paper empirically examines the performance of PE investments in Italy when leveraged buyouts were strictly regulated. The data show that extreme regulation reduces not only supply of capital, but also PE returns and firm performance, as well as the likelihood of an IPO exit.

Number of Pages in PDF File: 56

Keywords: Buyouts, Performance, Regulation, Governance, Law and Finance

JEL Classification: G23, G24, G28, K22, K34

working papers series