Which Firms Benefit from Strengthening Contract Enforcement? Foreignness as an Asset at Exit in Emerging Economies Private Equity

34 Pages Posted: 15 Sep 2011

See all articles by Markus D. Taussig

Markus D. Taussig

National University of Singapore (NUS) - Department of Business Policy

Date Written: September 13, 2011

Abstract

This paper explores how the value of foreignness is affected by institutional change over the life of private equity (PE) deals in emerging economies. I find that strengthening formal contracting institutions actually lower returns for deals managed by internationally experienced PE firms from OECD countries, while the effect on investments held by emerging economy PE firms is relatively more positive. The separation between local and foreign PE firms is not explained by differences in investee revenue growth, which is negatively affected by institutional change across the board. But separation is explained, at least in part, by the greater value of foreign resources like global buyer contacts and reputation when formal contracting is weaker at the time of final sale.

Keywords: private equity, emerging economies, contract enforcement, institutions, foreignness

JEL Classification: F23, G18, G24, G28, K42, L14

Suggested Citation

Taussig, Markus D., Which Firms Benefit from Strengthening Contract Enforcement? Foreignness as an Asset at Exit in Emerging Economies Private Equity (September 13, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1927028 or http://dx.doi.org/10.2139/ssrn.1927028

Markus D. Taussig (Contact Author)

National University of Singapore (NUS) - Department of Business Policy ( email )

17 Law Link
Singapore 117591
Singapore

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