Spillovers of PE Investments

37 Pages Posted: 7 Sep 2022

See all articles by Uwe Walz

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Leibniz Institute for Financial Research SAFE

Sang Truong

Goethe University Frankfurt - Department of Economics; Leibniz Institute for Financial Research SAFE

Date Written: September 3, 2022

Abstract

In this paper, we investigate a primary potential impact of leveraged buyout (LBOs) transactions: the effects of LBOs on the peers of the LBO target in the same industry. Using a data sample based on US LBO transactions between 1985 and 2016, we investigate the impact of the peer firms in the aftermath of the transaction, relative to non-peer firms. To account for potential endogeneity concerns, we employ a network-based instrumental variable approach. Based on this analysis, we find support for the proposition that LBOs do indeed matter for peer firms’ performance and corporate strategy relative to non-peer firms. Our study supports a learning factor hypothesis: peers gain by learning from the LBO target to improve their operational performance. Conversely, we find no evidence to support the conjecture that peers lose due to the increased competitiveness of the LBO target firm.

Keywords: LBO spillovers, peer effects, IV approach

JEL Classification: D45, L43, O33

Suggested Citation

Walz, Uwe and Truong, Huynh Sang, Spillovers of PE Investments (September 3, 2022). SAFE Working Paper No. 357, Available at SSRN: https://ssrn.com/abstract=4212428 or http://dx.doi.org/10.2139/ssrn.4212428

Uwe Walz (Contact Author)

Goethe University Frankfurt - Institute of Economics ( email )

Postfach 81
D-60054 Frankfurt
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Huynh Sang Truong

Goethe University Frankfurt - Department of Economics ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
103
Abstract Views
368
rank
372,256
PlumX Metrics