Agency Costs, Reputation and Collaboration: Syndication in the UK Market for Private Equity

45 Pages Posted: 1 Mar 2007

See all articles by Miguel Meuleman

Miguel Meuleman

Vlerick Business School; University of Nottingham

Mike Wright

Nottingham University Business School

Sophie Manigart

Vlerick Business School; Ghent University

Andy Lockett

Nottingham University Business School (NUBS)

Date Written: January 12, 2006

Abstract

Syndicates are a form of inter-firm alliance in which two or more private equity firms co-invest in an investee firm and share a joint pay-off, and are an enduring feature of the private equity industry. This study examines the relationship between syndication and agency costs at the level of the investee, and the extent to which the reputation and social embeddedness of the lead investor mediates this relationship. We examine this relationships using a sample of 732 buyout investments by 64 private equity companies in the UK between 1993 and 2001. Our findings show that where agency costs are highest, and hence ex-post monitoring by the lead investor is more important, syndication is less likely to occur. The negative relationship between agency costs and syndication, however, is mediated by the reputation and social embeddedness of the lead investor firm. That is, the reputation and social embeddedness of the lead investor helps to alleviate the costs associated with a syndicate arrangement. The results further highlight potential problems of adverse selection in the market for syndication.

Keywords: equity, financing, syndication, agency theory

JEL Classification: G24, G32

Suggested Citation

Meuleman, Miguel and Wright, Mike and Manigart, Sophie and Lockett, Andy, Agency Costs, Reputation and Collaboration: Syndication in the UK Market for Private Equity (January 12, 2006). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=966073 or http://dx.doi.org/10.2139/ssrn.966073

Miguel Meuleman (Contact Author)

Vlerick Business School ( email )

Reep 1
Gent, 9000
Belgium
0032(0)92109770 (Phone)
0032(0)92109790 (Fax)

University of Nottingham

University Park
Nottingham, NG8 1BB
United Kingdom

Mike Wright

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Sophie Manigart

Vlerick Business School ( email )

Reep 1
Ghent, BE-9000
Belgium

Ghent University ( email )

Sint-Pietersplein 7
Gent, 9000
Belgium

Andy Lockett

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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