This project supported [[Leveraged Buyout Innovation (Academic Paper)]] =Variable List=Jake Complete list: https://docs.google.com/a/rice.edu/spreadsheets/d/1OwcNDYXo_TefwPjUFHo5xVaBpOH4tmTnZmyBsuQRb_s/edit?usp=sharing Abridged list: LBO factors/incidence:*Log assets*R&D*Operating income*Sales*Tax*Liquidity*ROA*ROIC*Growth*Book val per share*Earnings variability*Takeover speculation/competing bid*Tobin's Q*Industry dummies (probably 2 digit NAICS) LBO characteristics*Division or full firm?*acquisition premium*breakdown of financing package:*common equity*preferred equity*senior debt*junior debt*cash =LBO Effects on Innovation Papers=
===Lerner et al 2011===
@article{lerner2011private,
filename={Lerner et al (2011) - Private equity and long run investment the case of innovation}
}
Finds that patents private equity backed firms applied for in the years after the investment are more frequently cited, showing no deterioration in patent orginality and generality. The leve level of patenting does not appear to consistently change, and the firms' patent portfolios become more focused in the years after the private equity investments. The areas where the firms concentrate their patenting after the private equity investment, and the historical strengths of the firm, tend to be the areas where the increase in patent impact is particularly great. Data:
Capital IQ data, Dealogic data, SDC VentureXpert, and compilations of news stories to identify private equity transactions, their characteristics, and the nature of their exits. 472 LBO transactions between jan 1980 and december 2005. Used Harvard business school patent database, which contains U.S. patent and trademark office electronic records through may 2007. HBS patent database was researched and cleaned up version of USPTO database. Final sample consists of 6398 patents from 472 firms granted from 1984 through may 2007. Buyouts of corporate divisions are most common, followed by private-to-private deals (investments in independent unquoted entities), secondary deals (firms that were already owned by another private equity investor), then public-to-private deals Robustness Checks: *Concern one: Private equity investments for which there was already an existing investor, patents may be double-counted. Employs these patents only the first time they appear then drops them. Results are little changed*Concern two: Only measures citation count during the 3 years after the award. Using a longer window increases accuracy but decreases sample size. Repeats the analysis through the end of the second calendar year after the patent grant and exits after the fourth year and finds that results are quantitatively similar.*Concert three: In divisional buyouts corporate parents may retain best patents and only give low quality patents to the PE backed division. This may lead to an apparent increase in quality in the patents applied for after the award. Addresses this issue by using the longer window for patents above and by rerunning cross tabulations and regressions with divisional buyouts excluded from the sample. Key results are little changed by this shift. Variables: *secondary exit - an LBO backed firm subsequently sold to another private equity fund*IPO - an lbo backed firm subsequently going public*trade sale - an lbo backed firm sbusequently being acquired by a strategic buyer*bankruptcy - an lbo backed firm subsequently filing for bankruptcy *event year - indicator variables that equal one for the given year in event time (the base year is year 0)*patent applications post - an indicator variable that equals one for event years 1 and forward *post plus one - an indicator variable that equals one for event years 2 and forward *share of firm's preinvestment patents in class - the fraction of the firms' pretransaction patents that are in the same industry class*change in firm's patents in class - an indicator for whether the difference in the share of patents in the class between the pre- and posttransaction periods is positive*post x share - an interaction between post and awardsshare of firm's pre-investment patents in class*patent application date post x change - an interaction between post and grant datechange in firm's patents in class
===Zahra 1995===
}
Results from this study suggest that a company's commitment to corporate entrepreneurship (measured through innovation and venturing) increase after an LBO. Results also show that post-LBO changes in corporate entrepreneurship are associated with, or accompanied by concurrent changes in company performance.
Data:
47 LBO firms, data from annual reports, business week, compustat, dun's million dollar, interviews, commerce department publications, forbes, funk and scott, fortune, wall street journal
Data was measured with the following variables:
}
The results show that PE-backed LBOs have a positive causal effect on both patenting and quality-adjusted patents measured by forward citations. This implies an increase in innovation activity rather than an increase in strategic patenting. The impact is predominantly driven by private to private LBO transactions. The findings are consistent with PE firm involvement relaxing financial constraints in firms, facilitating their investment in innovation activity.
Data:
Sources are the Center for Management Buyout Research, FAME, and PATSTAT. Data on PE firms and portfolio firms comes from CMBOR, which provides info on lbo deals. The FAME database provides financial and accounting data for UK firms. PATSTAT provides data on patent applications and citations in Europe. LBOs take place between 1998 and 2005. 407 UK deals.
*outcome variables
**profitability (profit divided by sales)
**age (log firm age)
===Nadant and Perdreau 2006===
@article{le2006financial,
title={Financial profile of leveraged buy-out targets: some French evidence},
author={Le Nadant, Anne-Laure and Perdreau, Fr{\'e}d{\'e}ric},
journal={Review of Accounting and Finance},
volume={5},
number={4},
pages={370--392},
year={2006},
publisher={Emerald Group Publishing Limited},
abstract={: This paper investigates whether firms, which are taken over on the French market through Leveraged Buyouts (LBOs), possess characteristics prior to the change which differentiate them from firms which are not acquired through LBOs. Contrasting 175 LBO targets on the French market with an industry-matched comparison group, we first run univariate analysis and then multivariate analysis(logit regression). Beyond the underscoring of the LBO targets‟ financial features, we conclude that subdividing our sample according to the vendor and bidder type is beneficial. We thus notice that the so-called outperformance of LBO targets prior to the deal hides in fact different cases.}
filename={Nadant and Perdreau (2006) - Financial Profile of Leveraged Buyout Targets Some French Evidence}
}
Confirms LBO targets are less indebted and possess relatively more liquid assets than their industry counterparts. Contrary to former findings, LBO's business risk also seems to be higher than for non-LBO firms prior to the deal. Also corroborates or disagrees with some dozen other hypotheses.
Data:
List of deals collected from Zephyr database of the BvD Suite for mid 1997 to 2002 and from the french review Capital Finance for the first semester 1997 and for the year 1996. 175 deals
Variables:
Activity and performance:
*FCF/TR “Free cash flows” (1) divided by turnover
*TRGR Turnover growth
*Tax/TR Income tax divided by turnover
*ROIC Return On Invested Capital = (operating income before taxes + interest expenses) divided by “economic assets” (WCR + fixed Assets (net))
*ROE Return On Equity = Net income divided by (stockholders equity - net income)
Business Risk:
*CVTRGR Coefficient of variation of turnover growth computed on the 3 yearperiod preceding the deal
*CVROIC Coefficient of variation of ROIC computed on the 3 year-period preceding the deal
*CVROE Coefficient of variation of ROE computed on the 3 year-period preceding the deal
*CVFCF/TR Coefficient of variation of FCF/turnover computed on the 3 yearperiod preceding the deal
Composition and characteristics of assets and financial structure:
*TanA/TA Tangible assets (net) divided by total assets (net)
*LEV Total debt divided by stockholders equity
*RET/TA Retained earnings/Total assets
*NC/TA Net cash/Total assets
*WCR/TR Working Capital Requirement divided by turnover
Implications Confirms LBO targets are less indebted and possess relatively more liquid assets than their industry counterparts. Contrary to former findings, LBO's business risk also seems to be higher than for non-LBO firms prior to the reasons LBOs occur and sources deal. Also corroborates or disagrees with some dozen other hypotheses. Data: List of value in LBO transactions. Describes characteristics, timelines, and stats deals collected from Zephyr database of LBOs that return the BvD Suite for mid 1997 to public ownership2002 and from the french review Capital Finance for the first semester 1997 and for the year 1996.175 deals Variables: Activity and performance:*FCF/TR “Free cash flows” (1) divided by turnover*TRGR Turnover growth*Tax/TR Income tax divided by turnover*ROIC Return On Invested Capital = (operating income before taxes + interest expenses) divided by “economic assets” (WCR + fixed Assets (net))*ROE Return On Equity = Net income divided by (stockholders equity - net income)
Business Risk:
*CVTRGR Coefficient of variation of turnover growth computed on the 3 yearperiod preceding the deal
*CVROIC Coefficient of variation of ROIC computed on the 3 year-period preceding the deal
*CVROE Coefficient of variation of ROE computed on the 3 year-period preceding the deal
*CVFCF/TR Coefficient of variation of FCF/turnover computed on the 3 yearperiod preceding the deal
Composition and characteristics of assets and financial structure:
*TanA/TA Tangible assets (net) divided by total assets (net)
*LEV Total debt divided by stockholders equity
*RET/TA Retained earnings/Total assets
*NC/TA Net cash/Total assets
*WCR/TR Working Capital Requirement divided by turnover
*FA/TA Financial assets (net)/Total Assets (net)
*TA/TAg Total Assets (net)/Total assets (gross)
===Roden & Lewellen 1995===
Attempts to explain why observed financing choices were made by individual firms. Identifies relationships between the characteristics of the target firms and the types of financings that were employed in their acquistion. Evidence that LBO financing decisions appear systematically to be affected by the target firm's growth prospects, the level and variability of return on its assets, its pre-buyout liquidity position, and by tax considerations and post-buyout restructuring plans.
==James==Data: LBOs that took place in the ten-year period from 1981 to 1990. Annual lists published in Mergers and Acquisitions. Then SEC 10k, 8k or 14D filing. More balance sheet and income statement info from COMPUSTAT and Moody's. Final sample was 107 LBOs Variables:
===Literature Reviews===*Target-firm size (SIZE)*Target-firm liquidity (LIQUIDITY)*Asset sales subsequent to the lbo (ASSETSALE)*Target-firm return on assets (ROA)*Target-firm growth opportunities (GROWTH and MRKTBOOK)*target-firm earnings variability (EARNINGVAR)*free cash flow ratio (FREECASH)*acquisition premium paid (PREMIUM) *trend variable (TIMEDUM)
Dependent variables:
=*PBANKL the percentage of the total buyout financing package that is represented by senior bank debt*PDEBTSEC: the percentage of the total package that consists of issues of junior debt securities*PPREFER: the percentage of the total package represented by issues of preferred stock*PCOMMON: the percentage of the total that consists of common equity provided by the buyout group*PCASH: the percentage of the total that comes from the use of the target firm's existing cash and marketable securities balances ===Kaplan 2009====
@article{kaplan_leveraged_2009,
A comprehensive review of the LBO/private equity literature up to 2009. Should be useful for finding additional sources and catching up with somewhat recent research.
====Cumming et al 2007====
@article{cumming_private_2007,
keywords = {Corporate governance, Financial and real returns, Management buyouts, Private equity, Total factor productivity},
pages = {439--460},
file = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\9ZAG35PZ\\Cumming et al. - (2007 ) - Private equity, leveraged buyouts LBOs and governance.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\75WUXVNA\\S0929119907000272.html:text/html}
}
In addition, should consider difference between hedge fund and private equity-financed buyouts (hedge funds less hands-on).
===Annotated=======Lehn and Poulsen 1989====
@article{lehn_free_1989,
*FOOTSTEPS (=1 if competing bid or takeover speculation in WSJ)
====Jensen 1988====
@article{jensen_takeovers:_1988,
*Warning signs: large cash flows, acquisition activity, low growth prospects
Seeks to establish commonality in the measurement of innovative performance. Its indicators include R&D inputs(expenditures), patent counts, patent citations, and new product announcements. Results of study are that any of these four indicators could be taken as a measure of innovative performance in the broad sense.
=Unsorted=
====Axelson 2013====
@article{axelson_borrow_2013,
title = {Borrow {Cheap}, {Buy} {High}? {The} {Determinants} of {Leverage} and {Pricing} in {Buyouts}},
abstract = {Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, international sample of buyouts from 1980 to 2008, we find that buyout leverage is unrelated to the cross-sectional factors, suggested by traditional capital structure theories, that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.},
language = {en},
number = {6},
urldate = {2016-06-17},
journal = {The Journal of Finance},
author = {Axelson, Ulf and Jenkinson, Tim and Strömberg, Per and Weisbach, Michael S.},
month = dec,
year = {2013},
pages = {2223--2267},
file = {Axelson et al (2013) - Determinants of Leverage and Pricing.pdf}
}
Discusses financing and pricing of LBOs. Only tangentially relevant to our project.
====Cloodt et al 2006====
file = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\SEU8CIRN\\Cloodt et al. - 2006 - Mergers and acquisitions Their effect on the inno.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\RDJIG292\\S004873330600045X.html:text/html}
}
====Van de Gucht 1998====
@article{van_de_gucht_predicting_1998,
title = {Predicting the duration and reversal probability of leveraged buyouts},
abstract = {We examine the probability that a firm will return to public status following a leveraged buyout (LBO) transaction and for those LBOs that will eventually reverse, we examine the factors that impact the timing of the reversal. These two dimensions of the reversal decision are studied by estimating standard and split population hazard models for a sample of 343 LBO transactions. Our results indicate that not all LBO firms eventually will reverse, i.e. the net benefits of private status for some firms appear to be permanent. For those LBOs that will reverse, reversal probabilities are found to increase over the first seven or eight years following a typical LBO, then to decline thereafter.},
number = {4},
urldate = {2016-06-17},
journal = {Journal of Empirical Finance},
author = {Van de Gucht, Linda M. and Moore, William T.},
month = oct,
year = {1998},
pages = {299--315},
file = {ScienceDirect Full Text PDF:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\CCNSKDXX\\Van de Gucht and Moore - 1998 - Predicting the duration and reversal probability o.pdf:application/pdf;ScienceDirect Snapshot:C\:\\Users\\James Chen\\AppData\\Roaming\\Zotero\\Zotero\\Profiles\\g2eepc1b.default\\zotero\\storage\\2IA32N4Q\\S0927539897000236.html:text/html}