Private Equity Performance Under Extreme Regulation

50 Pages Posted: 13 May 2012

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Simona Zambelli

University of Bologna - Department of Management

Multiple version iconThere are 2 versions of this paper

Date Written: March 30, 2012

Abstract

This study investigates the impact of excessive regulation on private equity (PE) returns and firm performance. History shows that extreme regulation and prohibition reduce the supply of capital and raise returns (e.g., as with drugs and diamonds). However, for value-added investors such as PE funds, extreme regulation also reduces the quality of capital and fund involvement. The net effect on returns is therefore ambiguous and heretofore not studied. With a new unique dataset, this paper empirically examines the performance of PE investments in Italy when leveraged buyouts are strictly regulated. The data show that extreme regulation reduces not only the supply of capital, but also PE returns and firm performance, as well as the likelihood of an IPO exit.

Keywords: Private equity, Regulation, Performance, Law and finance

JEL Classification: G23, G24, G28, K22, K34

Suggested Citation

Cumming, Douglas J. and Zambelli, Simona, Private Equity Performance Under Extreme Regulation (March 30, 2012). Journal of Banking and Finance, 2012, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2056786

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Simona Zambelli (Contact Author)

University of Bologna - Department of Management ( email )

Faculty of Economics - Forli School of Business
Piazzale della Vittoria, 15
FORLI, FC 47100
Italy

HOME PAGE: http://https://www.unibo.it/sitoweb/simona.zambelli/en

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