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Bank Affiliation in Private Equity Firms: Distortions in Investment Selection

Yingdi Wang

California State University, Fullerton

August 31, 2014

This paper studies the effects of leveraged buyouts (LBOs) sponsored by bank-affiliated private equity firms, which account for up to 30% of annual LBOs. Using detailed accounting information for U.K. firms, I find that the targets of bank-affiliated LBOs and independent LBOs differ systematically in size, profits, profitability, and liquidity. There is also some evidence that targets of bank-affiliated LBOs have lower risk. The differences in target characteristics further play a role in the underperformance of bank-affiliated LBOs compared to independent buyouts. I find no support for the alternative explanation for the underperformance based on lack of fund managers' skill. The overall results are consistent with the view that being part of a financial conglomerate does not create advantages for the private equity firm or the target company due to distortions in the process of selecting portfolio companies.

Number of Pages in PDF File: 47

Keywords: private equity, banks, leveraged buyout

JEL Classification: G21, G23, G24,

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Date posted: December 16, 2012 ; Last revised: September 14, 2014

Suggested Citation

Wang, Yingdi, Bank Affiliation in Private Equity Firms: Distortions in Investment Selection (August 31, 2014). Available at SSRN: http://ssrn.com/abstract=2189644 or http://dx.doi.org/10.2139/ssrn.2189644

Contact Information

Yingdi Wang (Contact Author)
California State University, Fullerton ( email )
Fullerton, CA 92831
United States
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