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Bank Affiliation in Private Equity: Distortions in Investment Selection

Yingdi Wang

California State University, Fullerton

November 15, 2012

Using detailed accounting information for over 300 target firms, this paper analyzes whether bank-affiliated leveraged buyouts (LBOs) are different from independent LBOs, and whether it is advantageous for private equity firms to be part of a financial conglomerate. I find that the target firms of bank-affiliated LBOs are fundamentally different from those of independent LBOs in size, profits, profitability, liquidity, and risk. I also find that bank-affiliated LBOs do not have any positive effect on the target firms' operating efficiency. More importantly, the differences in target characteristics play an important role in the underperformance of bank-affiliated LBOs compared to independent buyouts. Further analyses show that the benign explanation for the underperformance based on lack of skill is unlikely. The overall results are consistent with the view that bank-affiliated LBOs are not advantageous due to distortions in selecting portfolio companies.

Number of Pages in PDF File: 41

Keywords: private equity, banks, leveraged buyout

JEL Classification: G21, G23, G24,

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Date posted: December 16, 2012  

Suggested Citation

Wang, Yingdi, Bank Affiliation in Private Equity: Distortions in Investment Selection (November 15, 2012). 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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References:  27
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