Shall We Dance? Syndication, Social Network, and Performance: Evidence from Leveraged Buyout Investments
34 Pages Posted: 17 Feb 2011 Last revised: 7 Mar 2014
Date Written: November 2011
This paper examines how the educational profiles of the LBO management team, in particular the MBA graduates (MBAs) from prominent schools who tend to have strong alumni networks, might influence syndication decisions. With a unique hand-collected dataset of 941 LBO investments, I find that MBAs are not prone to syndication, and they tend to work with their cohorts when they syndicate, especially when agency costs exist. There exists a non-linear relationship between syndication and performance, indicating the inherently different natures of deals. MBAs perform better in non-syndicated deals but not in syndicated ones. It thus suggests that MBAs are good at pre-deal screening and might explain why they would seek outside expertise when needed. Overall, my findings show that syndication allows for the making of deals that otherwise may not be possible, and MBA alumni networks seem able to facilitate information flows and also to alleviate agency costs associated with co-investors.
Keywords: Leveraged buyouts, Syndication, Social networks, Agency costs, Top management teams
JEL Classification: G2
Suggested Citation: Suggested Citation