Skill, Syndication, and Performance: Evidence from Leveraged Buyouts

Abstract

This paper studies why buyout firms syndicate and how this influences buyout performance. I find evidence that skill plays an important role in syndication and its effect on performance. The results suggest low-skill firms utilize syndication to pool skill, resources, and information to overcome firm-specific deficiencies and improve performance, but no such effect exists for high-skill firms. This evidence is robust to potential endogeneity concerns and other alternative explanations. Additionally, this paper is the first to use a robust statistical network methodology studying the formation of syndication networks that allows for a consistent estimation of effects within the network despite the lack of independence among observations.

Keywords: Syndication, Leveraged Buyout, Private Equity, Boundaries of the Firm, Social Networks

JEL Classification: G23, G24, G34