Steven Neil Kaplan

New: The Market for CEOs: Evidence from Private Equity
Date Posted:Fri, 22 Jul 2022 11:52:19 -0500
Most research on the CEO labor market has studied public company CEOs while largely ignoring the market for CEOs in private equity funded companies. We fill this gap by studying the market for CEOs among larger U.S. companies (enterprise value greater than $1 billion) purchased by private equity firms between 2010 and 2016. We find that 71% of those companies hired new CEOs under private equity ownership. Almost 75% of the new CEOs are external hires with 67% being complete outsiders. The most recent experience of 69% of the outside CEOs was at a public company with 32% at an S&P 500 company. Almost 50% of the external hires have some previous experience at an S&P 500 company. These results are strikingly different from studies that look at public companies, in particular, Cziraki and Jenter (2021) who find that 72% of new CEOs in S&P 500 companies are internal promotions and 80% are internal promotions, former executives or board members. The median buyout in our sample ...

REVISION: Should Defined Contribution Plans Include Private Equity Investments?
Date Posted:Wed, 22 Jun 2022 09:20:15 -0500
This paper evaluates the pros and cons of including private equity fund investments in defined contribution plans. Potential benefits include higher returns and improved diversification as well as a relatively safe method for accessing investments previously only available to institutions and the very wealthy. Despite these enticing benefits, they need to be weighed against potential challenges and costs that may arise from creating this broader access to private funds. The complicated structure and uncertainty around the mechanism to provide required liquidity backstops may bring increased fees or even disrupt the private fund model. Consequently, whether access to private investments provide a net benefit for DC plan participants will depend both on how private fund investments perform in the future as well as how institutional features around plan participation evolve.

REVISION: Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Date Posted:Wed, 30 Mar 2022 18:30:41 -0500
We present new evidence on the persistence of U.S. buyout and venture capital (VC) fund performance using high quality cash-flow data sourced from Burgiss’s large sample of institutional investors. Using ex post returns, we find that persistence of VC funds has remained remarkably strong. We also find persistence in buyout performance, but this has become weaker for funds raised post-2000. However, when we focus on the information available to investors ex ante – previous fund performance at the time of fundraising, rather than final fund performance – we find little evidence of persistence for buyouts but continued strong persistence for VC funds.

REVISION: What Is CEO Overconfidence? Evidence from Executive Assessments
Date Posted:Thu, 24 Jun 2021 05:59:59 -0500
We use detailed assessments of CEO personalities to explore the nature of CEO overconfidence
as it is commonly measured. Longholder, the option-based measure of CEO overconfidence introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures, is significantly related to several specific characteristics that are associated with overconfident individuals as well as individuals of lower ability. Similar relations hold for overconfidence measures based on CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. After controlling for ability and other characteristics, Longholder CEOs’ investments remain significantly more sensitive to cash flows. These results suggest that overconfidence, as measured by Longholder, is correlated with lower ability but still reflects empirically distinct aspects of overconfidence.

REVISION: Should Defined Contribution Plans Include Private Equity Investments?
Date Posted:Mon, 25 Jan 2021 07:18:25 -0600
This paper evaluates the pros and cons of including private equity fund investments in defined contribution plans. Potential benefits include higher returns and improved diversification as well as a relatively safe method for accessing investments previously only available to institutions and the very wealthy. Despite these enticing benefits, they need to be weighed against potential challenges and costs that may arise from creating this broader access to private funds. The complicated structure and uncertainty around the mechanism to provide required liquidity backstops may bring increased fees or even disrupt the private fund model. Consequently, whether access to private investments provide a net benefit for DC plan participants will depend both on how private fund investments perform in the future as well as how institutional features around plan participation evolve.

New: Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Date Posted:Mon, 23 Nov 2020 11:07:38 -0600
We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using cash-flow data sourced from Burgiss’s large sample of institutional investors. Previous research, studying largely pre-2000 data, finds strong persistence for both buyout and venture capital (VC) firms. Using ex post or most recent fund performance (as of June2019), we confirm the previous findings on persistence overall as well as for pre-2001 and post-2000 funds. However, when we look at the information an investor would actually have – previous fund performance at the time of fundraising rather than final performance – we find little or no evidence of persistence for buyouts, both overall and post-2000. For post-2000 buyouts, the conventional wisdom to invest in previously top quartile funds does not hold. Using previous fund PME at fundraising, we find modest persistence, but it is driven by bottom, not top quartile performance. On the other hand, persistence for VC funds ...

REVISION: Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Date Posted:Mon, 09 Nov 2020 10:52:05 -0600
We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using cash-flow data sourced from Burgiss’s large sample of institutional investors. Previous research, studying largely pre-2000 data, finds strong persistence for both buyout and venture capital (VC) firms. Using ex post or most recent fund performance (as of June 2019), we confirm the previous findings on persistence overall as well as for pre-2001 and post-2000 funds. However, when we look at the information an investor would actually have – previous fund performance at the time of fundraising rather than final performance – we find little or no evidence of persistence for buyouts, both overall and post-2000. For post-2000 buyouts, the conventional wisdom to invest in previously top quartile funds does not hold. Using previous fund PME at fundraising, we find modest persistence, but it is driven by bottom, not top quartile performance. On the other hand, persistence for VC ...

REVISION: Venture Capitalists and COVID-19
Date Posted:Fri, 30 Oct 2020 03:34:47 -0500
We survey over one thousand institutional and corporate venture capitalists (VCs) on how the COVID-19 pandemic has affected their decisions and investments. Although individual funds and portfolio companies have been dramatically impacted, VCs expect aggregate returns to be largely unchanged because winners have offset losers. This suggests the primary impact of COVID-19 has been an increase in volatility and uncertainty. Consistent with that, VCs report initially delaying investment due to a difficulty evaluating deals and an expectation that future financings will offer investors more downside protections. We find only moderate evidence of disruption to VC capital flows, with investment expected to be down less than one-fifth, and only one-sixth of VCs reporting any pressure from limited partners to conserve capital. Despite the historical importance of in-person meetings, VCs do not report difficulty finding quality entrepreneurs. We also find little change in how VC allocate ...

REVISION: Are CEOs Different?
Date Posted:Fri, 30 Oct 2020 03:30:20 -0500
Using a dataset of 2,603 executive assessments with thirty individual characteristics, we identify who becomes a CEO candidate and how CEO candidates differ from candidates for other top- management positions, notably CFOs. The variation in characteristics is explained by four factors that we interpret as: general ability, execution (vs. interpersonal), charisma (vs. analytical), and strategic (vs. managerial). CEO candidates have more extreme scores, which differ significantly from those of CFO candidates. An out-of-sample test confirms that these factors are predictive for the candidates’ subsequent careers. Candidates with typical CEO scores are more likely to become CEOs. Conditional on being considered, candidates with greater general ability and greater interpersonal skills are more likely to be hired. These results combined with those in Kaplan, Klebanov and Sorensen (2012) suggest that boards overweight interpersonal skills in their CEO hiring decisions.

New: Venture Capitalists and COVID-19
Date Posted:Wed, 23 Sep 2020 12:00:06 -0500
We survey over 1,000 institutional and corporate venture capitalists (VCs) at more than 900 different firms to learn how their decisions and investments have been affected by the COVID-19 pandemic. We compare their survey answers to those provided by a large sample of VCs in early 2016 and analyzed in Gompers, Gornall, Kaplan, and Strebulaev (2020). VCs have slowed their investment pace (71% of normal) and expect to invest at 81% of their normal pace over the coming year. Not surprisingly, they have devoted more time to guiding the portfolio companies through the pandemic. VCs report that 52% of their portfolio companies are positively affected or unaffected by the pandemic; 38% are negatively affected; and 10% are severely negatively affected. Overall, they expect the pandemic to have a small negative effect on their fund IRRs (-1.6%) and MOICs (-0.07). Surprisingly, we find little change in the allocation of their time to helping portfolio companies relative to looking for new ...

New: Private Equity and COVID-19
Date Posted:Sun, 20 Sep 2020 08:54:53 -0500
We survey more than 200 private equity (PE) managers from firms with $1.9 trillion of assets under management (AUM) about their portfolio performance, decision-making and activities during the COVID-19 pandemic. Given that PE managers have significant incentives to maximize value, their actions during the current pandemic should indicate what they perceive as being important for both the preservation and creation of value. PE managers believe that 40% of their portfolio companies are moderately negatively affected and 10% are very negatively affected by the pandemic. The private equity managers—both investment and operating partners—are actively engaged in the operations, governance, and financing in all of their current portfolio companies. These activities are more intensively pursued in those companies that have been more severely affected by the Covid-19 pandemic. As a result of the pandemic, they expect the performance of their existing funds to decline. They are more ...

REVISION: Are CEOs Different?
Date Posted:Fri, 18 Sep 2020 03:00:37 -0500
Using a dataset of 2,603 executive assessments with thirty individual characteristics, we identify who becomes a CEO candidate and how CEO candidates differ from candidates for other top- management positions, notably CFOs. The variation in characteristics is explained by four factors that we interpret as: general ability, execution (vs. interpersonal), charisma (vs. analytical), and strategic (vs. managerial). CEO candidates have more extreme scores, which differ significantly from those of CFO candidates. An out-of-sample test confirms that these factors are predictive for the candidates’ subsequent careers. Candidates with typical CEO scores are more likely to become CEOs. Conditional on being considered, candidates with greater general ability and greater interpersonal skills are more likely to be hired. These results combined with those in Kaplan, Klebanov and Sorensen (2012) suggest that boards overweight interpersonal skills in their CEO hiring decisions.

REVISION: What Is CEO Overconfidence? Evidence from Executive Assessments
Date Posted:Thu, 27 Aug 2020 07:34:00 -0500
We use detailed assessments of CEO personalities to explore the option-based measure of CEO overconfidence, Longholder, introduced by Malmendier and Tate (2005a) and widely used in the behavioral corporate finance and economics literatures. Longholder is significantly related to several specific characteristics and is negatively related to general ability. These relations also hold for overconfidence measures derived from CEOs’ earnings guidance. Investment-cash flow sensitivities are larger for both Longholder and less able CEOs. Overall, Longholder CEOs have many of the same characteristics traditionally associated with overconfident individuals, including lower general ability, supporting the interpretation of this measure as reflecting overconfidence.

REVISION: Venture Capitalists and COVID-19
Date Posted:Thu, 13 Aug 2020 05:58:14 -0500
We survey over 1,000 institutional and corporate venture capitalists (VCs) at more than 900 different firms to learn how their decisions and investments have been affected by the COVID-19 pandemic. We compare their survey answers to those provided by a large sample of VCs in early 2016 and analyzed in Gompers, Gornall, Kaplan, and Strebulaev (2020). VCs have slowed their investment pace (71% of normal) and expect to invest at 81% of their normal pace over the coming year. Not surprisingly, they have devoted more time to guiding the portfolio companies through the pandemic. VCs report that 52% of their portfolio companies are positively affected or unaffected by the pandemic; 38% are negatively affected; and 10% are severely negatively affected. Overall, they expect the pandemic to have a small negative effect on their fund IRRs (-1.6%) and MOICs (-0.07). Surprisingly, we find little change in the allocation of their time to helping portfolio companies relative to looking for new ...

New: Private Equity Portfolio Companies: A First Look at Burgiss Holdings Data
Date Posted:Tue, 03 Mar 2020 09:43:20 -0600
This paper provides a first look at newly available data on the holdings of private equity (PE) funds. Because research has been hampered by the lack of comprehensive, high-quality data on portfolio companies, this new source offers the potential for a wide range of research. Provided by Burgiss, a global provider of data and analytics to investors in PE funds (limited partner investors or LPs), the data are gathered from the financial reports of general partners (GPs) to LPs who are Burgiss clients. The sample covers over 45,000 investments in funds’ portfolio companies (in buyout and venture capital); moreover, the coverage is expected to grow through a phased release process. The paper describes preliminary findings on sample characteristics and offers a high-level view on aspects of performance in hopes of inspiring additional research. Returns to investments in portfolio companies are highly variable and skewed. This is particularly true of venture capital where many investments ...

REVISION: Can Investors Time Their Exposure to Private Equity?
Date Posted:Sat, 25 Jan 2020 04:28:21 -0600
Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing realistic, investable strategies that time capital commitments to private equity. This occurs, in part, because investors can only time their commitments to funds; they cannot time when commitments are called or when investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

REVISION: Are CEOs Different?
Date Posted:Tue, 12 Nov 2019 04:54:26 -0600
Using a dataset with 2,603 executive assessments with thirty individual characteristics, we identify who becomes CEO and how CEO candidates differ from candidates for other top management positions, notably CFOs. The variation in the characteristics is explained by four factors that we interpret as: general ability, execution (vs. interpersonal), charisma (vs. analytical), and strategic (vs. managerial). CEO candidates have more extreme scores, which differ significantly from those of CFO candidates. An out-of-sample test confirms that these factors remain predictive for the candidates’ subsequent careers. Candidates with typical CEO candidate scores are more likely to become CEOs. Conditional on being considered, candidates with greater general ability and greater interpersonal skills are more likely to be hired. These results combined with those in Kaplan, Klebanov and Sorensen (2012) suggest that boards overweight interpersonal skills in their CEO hiring decisions.

REVISION: Can Investors Time Their Exposure to Private Equity?
Date Posted:Mon, 21 Oct 2019 05:22:45 -0500
Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing realistic, investable strategies that time capital commitments to private equity. This occurs, in part, because investors can only time their commitments to funds; they cannot time when commitments are called or when investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

REVISION: Can Investors Time Their Exposure to Private Equity?
Date Posted:Mon, 14 Jan 2019 06:09:00 -0600
Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low absolute performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing more realistic, investable strategies that time capital commitments to private equity. This occurs because investors can only time their commitments to funds; they cannot time when their commitments are called or when their investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

REVISION: Can Investors Time Their Exposure to Private Equity?
Date Posted:Sun, 11 Nov 2018 14:57:49 -0600
Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low absolute performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing more realistic, investable strategies that time capital commitments to private equity. This occurs because investors can only time their commitments to funds; they cannot time when their commitments are called or when their investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

REVISION: Can Investors Time Their Exposure to Private Equity?
Date Posted:Thu, 13 Sep 2018 04:27:33 -0500
Private equity performance, both for buyouts and venture capital, has been highly cyclical: periods of high fundraising have been followed by periods of low absolute performance. Despite this seemingly predictable variation, we find modest gains, at best, to pursuing more realistic, investable strategies that time capital commitments to private equity. This occurs because investors can only time their commitments to funds; they cannot time when their commitments are called or when their investments are exited. There is a high degree of time-series correlation in net cash flows even across commitment strategies that allocate capital in a very different manner over time.

REVISION: Are CEOs Different? Characteristics of Top Managers
Date Posted:Thu, 10 Aug 2017 02:47:43 -0500
We use a dataset of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. We classify the thirty candidate characteristics with four primary factors: general ability, execution vs. interpersonal, charisma vs. analytic, and strategic vs. managerial details. CEO candidates tend to score higher on these factors; CFO candidates score lower. Conditional on being a candidate, executives with greater interpersonal skills are more likely to be hired, suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ...

REVISION: Do Private Equity Funds Manipulate Reported Returns?
Date Posted:Fri, 07 Jul 2017 07:04:16 -0500
Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some underperforming managers inflate reported returns during times when fundraising takes place. However, those managers are less likely to raise a next fund, suggesting that investors can see through the manipulation on average. In contrast, we find that top-performing funds likely understate their valuations. A simple theoretical framework rationalizes our empirical results as well as those of related papers.

New: Are U.S. Companies Too Short-Term Oriented? Some Thoughts
Date Posted:Tue, 23 May 2017 06:03:02 -0500
U.S. companies are often criticized for being overly short-term oriented. This paper documents that those criticisms have a long history, going back at least thirty-five years. The paper then considers the implications of sustained short-termism for corporate profits, venture capital investments and returns, private equity investments and returns, and corporate valuations. The paper finds little long-term evidence that is consistent with the predictions of the short-term critics.

REVISION: Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?
Date Posted:Sat, 13 May 2017 06:38:29 -0500
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). After accounting for fees, FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of FOFs in venture capital is on a par with results from direct venture fund investing. This suggests that FOFs in venture capital (but not in buyouts) are able to identify and access superior performing funds.

REVISION: Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?
Date Posted:Thu, 11 May 2017 22:47:37 -0500
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). After accounting for fees, FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of FOFs in venture capital is on a par with results from direct venture fund investing. This suggests that FOFs in venture capital (but not in buyouts) are able to identify and access superior performing funds.

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Thu, 02 Feb 2017 02:49:48 -0600
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Mon, 12 Sep 2016 11:14:24 -0500
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Wed, 07 Sep 2016 21:18:23 -0500
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: What Do Private Equity Firms Say They Do?
Date Posted:Wed, 07 Sep 2016 20:51:40 -0500
We survey 79 private equity (PE) investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rates of return and multiples to evaluate investments. Their limited partners focus more on absolute performance as opposed to risk-adjusted returns. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Sun, 28 Aug 2016 01:42:32 -0500
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Thu, 25 Aug 2016 10:05:45 -0500
We survey 885 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: Do Private Equity Funds Manipulate Reported Returns?
Date Posted:Thu, 11 Aug 2016 05:14:08 -0500
Private equity funds hold assets that are hard to value. Managers may have an incentive to distort reported valuations if these are used by investors to decide on commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported return manipulation. We find evidence that some under-performing managers boost reported returns during times when fundraising takes place. However, those managers are unlikely to raise a next fund, suggesting that investors see through much of the manipulation. In contrast, we find that top-performing funds likely understate their valuations.

REVISION: How Do Venture Capitalists Make Decisions?
Date Posted:Fri, 22 Jul 2016 02:45:32 -0500
We survey 889 institutional venture capitalists (VCs) at 681 firms to learn how they make decisions across eight areas: deal sourcing; investment decisions; valuation; deal structure; post-investment value-added; exits; internal organization of firms; and relationships with limited partners. In selecting investments, VCs see the management team as more important than business related characteristics such as product or technology. They also attribute more of the likelihood of ultimate investment success or failure to the team than to the business. While deal sourcing, deal selection, and post-investment value-added all contribute to value creation, the VCs rate deal selection as the most important of the three. We also explore (and find) differences in practices across industry, stage, geography and past success. We compare our results to those for CFOs (Graham and Harvey 2001) and private equity investors (Gompers, Kaplan and Mukharlyamov forthcoming).

REVISION: CEO Personality and Firm Policies
Date Posted:Wed, 13 Jul 2016 04:22:47 -0500
Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.

Update: CEO Personality and Firm Policies
Date Posted:Fri, 08 Jul 2016 06:44:30 -0500
Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.
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REVISION: CEO Personality and Firm Policies
Date Posted:Fri, 08 Jul 2016 02:34:20 -0500
Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.

REVISION: CEO Personality and Firm Policies
Date Posted:Fri, 08 Jul 2016 02:03:57 -0500
Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices and firm operating performance.

REVISION: Are CEOs Different? Characteristics of Top Managers
Date Posted:Wed, 01 Jun 2016 14:02:04 -0500
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the ...

REVISION: Are CEOs Different? Characteristics of Top Managers
Date Posted:Tue, 15 Mar 2016 05:55:43 -0500
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the ...

REVISION: Are CEOs Different? Characteristics of Top Managers
Date Posted:Tue, 15 Mar 2016 05:52:35 -0500
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the ...

REVISION: Are CEOs Different? Characteristics of Top Managers
Date Posted:Tue, 15 Mar 2016 05:52:31 -0500
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the ...

New: What Do Different Commercial Data Sets Tell Us About Private Equity Performance?
Date Posted:Mon, 14 Dec 2015 03:57:09 -0600
This paper examines private equity (both buyout and venture funds) performance around the globe using four data sets from leading commercial sources. For North American funds, our results echo recent research findings: buyout funds have outperformed public equities over long periods of time; in contrast, venture funds saw performance fall after spectacular results for vintages in the 1990s. For funds outside North America, buyout funds show performance similar to those in North America while venture fund performance is weaker than in North America. Venture samples outside North America are, however, relatively small and strong conclusions await further research. The similarity of performance estimates across the data sets strengthens confidence in conclusions about the results of private equity investing.

REVISION: Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?
Date Posted:Mon, 31 Aug 2015 22:58:30 -0500
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). Compared to investments in hedge funds or publicly traded stocks, private equity investments in direct funds are less liquid, less easily scaled and have higher search and monitoring costs. As a consequence, FOFs in private equity may provide valuable intermediation for investors who want exposure to the asset class. We benchmark FOF performance (net of their fees) against both public equity markets and strategies of direct investment into private equity funds. We also examine the types of portfolios private equity FOFs create when they pool investor capital. After accounting for fees, primary FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of ...

REVISION: Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?
Date Posted:Sat, 29 Aug 2015 09:17:29 -0500
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). Compared to investments in hedge funds or publicly traded stocks, private equity investments in direct funds are less liquid, less easily scaled and have higher search and monitoring costs. As a consequence, FOFs in private equity may provide valuable intermediation for investors who want exposure to the asset class. We benchmark FOF performance (net of their fees) against both public equity markets and strategies of direct investment into private equity funds. We also examine the types of portfolios private equity FOFs create when they pool investor capital. After accounting for fees, primary FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of ...

REVISION: Private Equity Performance: A Survey
Date Posted:Sat, 15 Aug 2015 06:00:35 -0500
We survey the literature on private equity performance, focusing on venture capital and buyout funds rather than portfolio companies. We describe recent findings on performance measures, average fund returns, risk adjustments, cyclicality and liquidity, persistence, interim returns and self-reported net asset values, the performance of different types of investors in funds, and the links between management contracts and fund returns. Buyout funds have outperformed the S&P 500 net of fees on average by about 20% over the life of the fund. Venture capital funds raised in the 1990s outperformed the S&P 500 while those raised in the 2000s underperformed. The results are consistent across a number of datasets and papers. Before the 2000s, buyout and venture capital fund performance showed strong evidence of persistence. Since 2000, buyout fund persistence has declined, while venture capital fund persistence has remained equally strong.

REVISION: Private Equity Performance: A Survey
Date Posted:Wed, 08 Jul 2015 03:48:01 -0500
We survey the literature on private equity performance, focusing on venture capital and buyout funds rather than portfolio companies. We describe recent findings on performance measures, average fund returns, risk adjustments, cyclicality and liquidity, persistence, interim returns and self-reported net asset values, the performance of different types of investors in funds, and the links between management contracts and fund returns. Buyout funds have outperformed the S&P 500 net of fees on average by about 20% over the life of the fund. Venture capital funds raised in the 1990s outperformed the S&P 500 while those raised in the 2000s underperformed. The results are consistent across a number of datasets and papers. Before the 2000s, buyout and venture capital fund performance showed strong evidence of persistence. Since 2000, buyout fund persistence has declined, while venture capital fund persistence has remained equally strong.

REVISION: Financial Intermediation in Private Equity: How Well Do Funds of Funds Perform?
Date Posted:Sat, 20 Jun 2015 09:31:28 -0500
This paper focuses on funds of funds (FOFs) as a form of financial intermediation in private equity (both buyout and venture capital). Compared to investments in hedge funds or publicly traded stocks, private equity investments in direct funds are less liquid, less easily scaled and have higher search and monitoring costs. As a consequence, FOFs in private equity may provide valuable intermediation for investors who want exposure to the asset class. We benchmark FOF performance (net of their fees) against both public equity markets and strategies of direct investment into private equity funds. We also examine the types of portfolios private equity FOFs create when they pool investor capital. After accounting for fees, primary FOFs provide returns equal to or above public market indices for both buyout and venture capital. While FOFs focusing on buyouts outperform public markets, they underperform direct fund investment strategies in buyout. In contrast, the average performance of ...

REVISION: How Do Private Equity Investments Perform Compared to Public Equity?
Date Posted:Fri, 19 Jun 2015 00:34:01 -0500
The merits of investing in private versus public equity have generated considerable debate, often fueled by concerns about data quality. In this paper, we use cash flow data derived from the holdings of almost 300 institutional investors to study over 1,800 North American buyout and venture capital funds. Average buyout fund returns for all vintage years but one before 2006 have exceeded those from public markets; averaging about 3% to 4% annually. Post-2005 vintage year returns have been roughly equal to those of public markets. We find similar performance results for a sample of almost 300 European buyout funds. Venture capital performance has varied substantially over time. North American venture funds from the 1990s substantially outperformed public equities; those from the early 2000s have underperformed; and recent vintage years have seen a modest rebound. The variation in venture performance is significantly linked to capital flows: performance is lower for funds started ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Sat, 13 Jun 2015 07:27:37 -0500
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if these are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV manipulation. We find evidence that some managers boost reported NAVs during times that fundraising activity is likely to occur. However, those managers are unlikely to raise a next fund, suggesting that investors see through the manipulation. In contrast, we find that top-performing funds under-report returns. This conservatism is consistent with these managers insuring against future bad luck that could make them appear as though they are NAV manipulators. Our results are robust to a variety of specifications and ...

New: What Do Private Equity Firms Say They Do?
Date Posted:Thu, 30 Apr 2015 23:22:59 -0500
We survey 79 private equity investors with combined AUM of over $750B about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on IRR and multiples to evaluate investments. Their LPs focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

REVISION: How Do Private Equity Investments Perform Compared to Public Equity?
Date Posted:Thu, 23 Apr 2015 09:31:41 -0500
The merits of investing in private versus public equity have generated considerable debate, often fueled by concerns about data quality. In this paper, we use cash flow data derived from the holdings of almost 300 institutional investors to study over 1,800 North American buyout and venture capital funds. Buyout fund returns have consistently exceeded those from public markets; averaging about 3% to 4% annually. We find similar performance results for a sample of almost 300 European buyout funds. Venture capital performance has varied substantially over time. North American venture funds from the 1990s substantially outperformed public equities; those from the early 2000s have underperformed; and recent vintage years have seen a modest rebound. The variation in venture performance is significantly linked to capital flows: performance is lower for funds started when there are large aggregate inflows of capital to the sector. We also examine the variation in performance of funds ...

REVISION: What Do Private Equity Firms (Say They) Do?
Date Posted:Tue, 10 Jun 2014 17:06:44 -0500
We survey 79 private equity (buyout) investors with a total of over $750 billion of assets under management about their practices in firm valuation, capital structure, governance and value creation. Few investors use discounted cash flow or present value techniques to evaluate investments. Rather, they rely on internal rates of return and multiples of invested capital. Private equity investors typically target a 22% internal rate of return on their investments on average with most firms clustered tightly between 20% and 25%. They also use comparable company multiples to calculate exit values rather than discounted cash flows. Capital structure choice is based equally on optimal trade-off and market timing considerations. Private equity investors anticipate improving the performance of the companies in which they invest, with a greater focus on increasing growth than on reducing costs. They devote meaningful firm resources to do this. We also explore cross-sectional ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Tue, 01 Apr 2014 12:54:24 -0500
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if these are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV manipulation. We find evidence that some managers boost reported NAVs during times that fundraising activity is likely to occur. Those managers, however, are subsequently unable to raise a next fund, suggesting that investors see through the manipulation. In contrast, we find that top-performing funds under-report returns. This conservatism is consistent with these firms insuring against future bad luck that could make them appear as though they are NAV manipulators. Our results are robust to a variety of ...

REVISION: Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Date Posted:Mon, 03 Mar 2014 07:34:27 -0600
The conventional wisdom for investors in private equity funds is to invest in partnerships that have performed well in the past. This is based on the belief that performance in private equity persists across funds of the same partnership. We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using a research-quality dataset from Burgiss, sourced from over 200 institutional investors. Relying on detailed cash-flow data for funds, we study the persistence of buyout and venture capital fund performance of the same general partners across different funds. We pay particular attention to persistence pre- and post-2000. Previous research, studying largely pre-2000 data, has found strong persistence for both buyout and venture capital firms. We confirm the previous findings on persistence in pre-2000 funds. There is persistence for buyout funds and, particularly, for venture funds. Post-2000, we find little evidence of persistence for ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Sun, 17 Nov 2013 01:28:00 -0600
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if these are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV manipulation. We find evidence that some managers boost reported NAVs during times that fundraising activity is likely to occur. Those managers, however, are subsequently unable to raise a next fund, suggesting that investors see through the manipulation. In contrast, we find that top-performing funds under-report returns. This conservatism is consistent with these firms insuring against future bad luck that could make them appear as though they are NAV manipulators. Our results are robust to a variety of ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Sun, 25 Aug 2013 03:49:35 -0500
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if returns on existing funds are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV ...

REVISION: Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds
Date Posted:Fri, 02 Aug 2013 18:11:25 -0500
The conventional wisdom for investors in private equity funds is to invest in partnerships that have performed well in the past, so-called top quartile funds. This conventional wisdom is based on the belief that performance in private equity persists across funds for the same partnership. We present new evidence on the persistence of U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Tue, 30 Jul 2013 05:11:42 -0500
We study the performance of nearly 1400 U.S. buyout and venture capital funds using a new dataset from Burgiss. We find better buyout fund performance than has previously been documented – performance consistently has exceeded that of public markets. Outperformance versus the S&P 500 averages 20% to 27% over a fund’s life and more than 3% annually. Venture capital funds outperformed public equities in the 1990s, but underperformed in the 2000s. Our conclusions are robust to various ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Mon, 29 Jul 2013 14:23:26 -0500
We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We find better buyout fund performance than has previously been documented. Average U.S. buyout fund performance has exceeded that of public markets for most vintages for ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Tue, 04 Jun 2013 05:45:36 -0500
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if returns on existing funds are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV ...

REVISION: Do Private Equity Funds Game Returns?
Date Posted:Thu, 30 May 2013 08:17:14 -0500
By their nature, private equity funds hold assets that are hard to value. This uncertainty in asset valuation gives rise to the potential for fund managers to manipulate reported net asset values (NAVs). Managers may have an incentive to game valuations in the short-run if returns on existing funds are used by investors to make decisions about commitments to subsequent funds managed by the same firm. Using a large dataset of buyout and venture funds, we test for the presence of reported NAV ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Tue, 02 Apr 2013 19:27:39 -0500
We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We find better buyout fund performance than has previously been documented. Average U.S. buyout fund performance has exceeded that of public markets for most vintages for ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Mon, 12 Nov 2012 16:31:34 -0600
We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high-loan fee stocks in the manager’s portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, ...

REVISION: Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges
Date Posted:Wed, 26 Sep 2012 00:34:19 -0500
In this paper, I consider the evidence for three common perceptions of U.S. public company CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for their performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s ...

REVISION: Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges
Date Posted:Thu, 06 Sep 2012 02:03:48 -0500
In this paper, I consider the evidence for three common perceptions of U.S. CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s. In fact, the relative pay ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Wed, 29 Aug 2012 14:31:00 -0500
We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high-loan fee stocks in the manager’s portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, ...

REVISION: Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges
Date Posted:Wed, 29 Aug 2012 01:51:49 -0500
In this paper, I consider the evidence for three common perceptions of U.S. CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s. In fact, the relative ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Sun, 04 Mar 2012 05:12:17 -0600
We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets – Venture Economics, Preqin and Cambridge Associates – as well as recent research ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Fri, 10 Feb 2012 18:31:25 -0600
We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets – Venture Economics, Preqin and Cambridge Associates – as well as recent research ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Wed, 08 Feb 2012 16:04:19 -0600
We present evidence on the performance of nearly 1400 U.S. private equity (buyout and venture capital) funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data, we compare buyout and venture capital returns to the returns produced by public markets. We also compare the evidence from Burgiss to that derived from other commercial datasets – Venture Economics, Preqin and Cambridge Associates – as well as recent research ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Mon, 24 Oct 2011 17:44:21 -0500
We present time series evidence on the performance of private equity funds using both summary and individual fund data from Burgiss as well as summary data from the other leading commercial datasets - Venture Economics, Preqin and Cambridge Associates - and other recent research. We focus on U.S. buyout and venture capital funds, considering the implications of these data for private equity performance. Average buyout fund returns in the U.S. have exceeded those of public markets for most ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Thu, 13 Oct 2011 11:36:37 -0500
We examine the impact of short selling by conducting a randomized stock lending experiment. Working with a large, anonymous money manager, we create an exogenous and sizeable shock to the supply of lendable shares by taking high-loan fee stocks in the manager’s portfolio and randomly making available and withholding stocks from the lending market. The experiment ran in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, ...

REVISION: Private Equity Performance: What Do We Know?
Date Posted:Fri, 23 Sep 2011 17:31:42 -0500
We present time series evidence on the performance of private equity funds using both summary and individual fund data from Burgiss as well as summary data from the other leading commercial datasets - Venture Economics, Preqin and Cambridge Associates - and other recent research. We focus on U.S. buyout and venture capital funds, considering the implications of these data for private equity performance. Average buyout fund returns in the U.S. have exceeded those of public markets for most ...

REVISION: Which CEO Characteristics and Abilities Matter?
Date Posted:Tue, 14 Dec 2010 18:46:33 -0600
We exploit a unique data set to study individual characteristics of CEO candidates for companies involved in buyout and venture capital transactions and relate these characteristics to subsequent corporate performance. CEO candidates vary along two primary dimensions: one that captures general ability and another that contrasts communication and interpersonal skills with execution skills. We find that subsequent performance is positively related to general ability and execution skills. The ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Tue, 07 Sep 2010 21:47:09 -0500
Working with a sizeable, anonymous money manager, we randomly make available for lending two-thirds of the high-loan fee stocks in the manager’s portfolio and withhold the other third to produce an exogenous shock to loan supply. We implement the lending experiment in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, from June 5 to September 30, 2009, with over $250 million of securities lent. The supply shocks are ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Wed, 01 Sep 2010 15:25:32 -0500
Working with a sizeable, anonymous money manager, we randomly make available for lending two-thirds of the high-loan fee stocks in the manager’s portfolio and withhold the other third to produce an exogenous shock to loan supply. We implement the lending experiment in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, from June 5 to September 30, 2009, with over $250 million of securities lent. The supply shocks are ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Sun, 22 Aug 2010 19:17:37 -0500
Working with a sizeable, anonymous money manager, we randomly make available for lending two-thirds of the high-loan fee stocks in the manager’s portfolio and withhold the other third to produce an exogenous shock to loan supply. We implement the lending experiment in two independent phases: the first, from September 5 to 18, 2008, with over $580 million of securities lent; and the second, from June 5 to September 30, 2009, with over $250 million of securities lent. The supply shocks are ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Thu, 04 Mar 2010 08:20:15 -0600
Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending ...

Update: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Thu, 19 Nov 2009 05:55:15 -0600
Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending (recal
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REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Tue, 03 Nov 2009 18:25:06 -0600
Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending ...

REVISION: The Effects of Stock Lending on Security Prices: An Experiment
Date Posted:Thu, 22 Oct 2009 17:19:24 -0500
Working with a sizeable (greater than $15 billion in assets) anonymous money manager, we exogenously shift the supply of lendable shares for certain stocks by randomly making available for lending 2/3 of the stocks in the manager’s portfolio and withholding 1/3 of the stocks from the loan market. The lending program commenced in early September 2008 and the loans were recalled in mid-September 2008, with over $700 million of securities lent out at the peak of the study. During the lending ...

The State of U.S. Corporate Governance: What's Right and What's Wrong?
Date Posted:Sat, 03 Oct 2009 17:01:46 -0500
The U.S. corporate governance system has recently been heavily criticized, largely as a result of failures at Enron, WorldCom, Tyco and some other prominent companies. Those failures and criticisms, in turn, have served as catalysts for legislative change (Sarbanes-Oxley Act of 2002) and regulatory change (new governance guidelines from the NYSE and NASDAQ). In this paper, we consider two questions. First, is it clear that the U.S. system has performed that poorly; is it really that bad? ...

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Wed, 16 Sep 2009 17:02:08 -0500
We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to VC investments in the U.S. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. At the same time, however, more experienced VCs implement U.S.-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use U.

Private Equity Performance: Returns, Persistence and Capital
Date Posted:Thu, 19 Feb 2009 11:26:04 -0600
This paper investigates the performance of private equity partnerships using a data set of individual fund returns collected by Venture Economics. Over the sample period, average fund returns net of fees approximately equal the S&P 500 although there is a large degree of heterogeneity. Returns persist strongly across funds raised by individual private equity partnerships. Better performing funds are more likely to raise follow-on funds and raise larger funds than funds that perform poorly ...

Private Equity Performance: Returns, Persistence and Capital Flows
Date Posted:Thu, 19 Feb 2009 11:12:37 -0600
This paper investigates the performance of private equity partnerships using a data set of individual fund returns collected by Venture Economics. Over the sample period, average fund returns net of fees approximately equal the S&P 500 although there is a large degree of heterogeneity among fund returns. Returns persist strongly across funds raised by individual private equity partnerships. The returns also improve with partnership experience. Better performing funds are more likely to raise ...

Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Thu, 18 Sep 2008 02:52:23 -0500
We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater ...

New: Leveraged Buyouts and Private Equity
Date Posted:Thu, 28 Aug 2008 01:11:37 -0500
We describe and present time series evidence on the leveraged buyout / private equity industry, both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent private equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of private equity.

New: Which CEO Characteristics and Abilities Matter?
Date Posted:Thu, 28 Aug 2008 00:03:02 -0500
We study the characteristics and abilities of CEO candidates for companies involved in buyout (LBO) and venture capital (VC) transactions and relate them to hiring decisions, investment decisions, and company performance. Candidates are assessed on more than thirty individual abilities. The abilities are highly correlated; a factor analysis suggests there are two primary factors with intuitive characterizations -- one for general ability and one that contrasts team-related, interpersonal ...

REVISION: Leveraged Buyouts and Private Equity
Date Posted:Tue, 05 Aug 2008 09:21:40 -0500
We describe and present time series evidence on the leveraged buyout/private equity industry, both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent private equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of private equity.

REVISION: Leveraged Buyouts and Private Equity
Date Posted:Sun, 03 Aug 2008 14:13:21 -0500
We describe and present time series evidence on the leveraged buyout/private equity industry, both firms and transactions. We discuss the existing empirical evidence on the economics of the firms and transactions. We consider similarities and differences between the recent private equity wave and the wave of the 1980s. Finally, we speculate on what the evidence implies for the future of private equity.

REVISION: Which CEO Characteristics and Abilities Matter?
Date Posted:Wed, 23 Jul 2008 20:48:09 -0500
Using a dataset of assessments of CEO candidates for companies involved in private equity transactions (PE) - buyout (BO) and venture capital (VC) - we study how CEO characteristics and abilities relate to hiring decisions, PE investment decisions, and subsequent performance. CEOs are assessed in seven general areas - leadership, personal, intellectual, motivational, interpersonal, technical and functional. The ratings of different characteristics and abilities are generally correlated. For ...

How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Be...
Date Posted:Tue, 22 Apr 2008 04:17:15 -0500
This paper studies twenty-nine highly leveraged transactions (HLTs) of the 1980s that subsequently become financially distressed. High leverage, not poor firm performance or poor industry performance, is the primary cause of financial distress for these firms -- all of the sample firms have positive operating income at the time of distress. These firms, therefore, are financially distressed, not economically distressed. We estimate the effects of this financial distress on value, the costs of ...

Top Executives, Turnover, and Firm Performance in Germany
Date Posted:Tue, 22 Apr 2008 04:16:08 -0500
This article examines executive turnover--for both management and supervisory boards--and its relation to firm performance in the largest companies in Germany in the 1980s. Turnover of the management board increases significantly with poor stock performance and particularly poor (i.e., negative) earnings, but is unrelated to sales growth and earnings growth. These turnover performance relations do not vary with measures of stock ownership and bank voting power. Supervisory board appointments ...

The Valuation of Cash Flow Forecasts: An Empirical Analysis
Date Posted:Tue, 22 Apr 2008 04:14:36 -0500
This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also ...

Appointments of Outsiders to Japanese Boards: Determinants and Implications for Managers
Date Posted:Tue, 22 Apr 2008 04:13:22 -0500
This paper investigates the determinants of appointments of outsiders -- directors previously employed by banks (bank directors) or by other nonfinancial firms (corporate directors) -- to the boards of large nonfinancial Japanese corporations. Such appointments increase with poor stock performance; those of bank directors also increase with earnings losses. Turnover of incumbent top executives increases substantially in the year of both types of outside appointments. We perform a similar ...

The Valuation of Cash Flow Forecasts: An Empirical Analysis
Date Posted:Tue, 22 Apr 2008 04:10:22 -0500
This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. For our sample of 51 HLTs completed between 1983 and 1989, the valuations of discounted cash flow forecasts are within 10%, on average, of the market values of the completed transactions. Our valuations perform at least as well as valuation methods using comparable companies and transactions. We also invertour analysis by estimating the risk premia ...

Do Investment Cash-Flow Sensitivities Provide Useful Measures of Financing Constraints?
Date Posted:Tue, 22 Apr 2008 04:08:23 -0500
This paper investigates the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen as having unusually high investment-cash flow sensitivities. We find that firms that appear less financially constrained exhibit significantly greater sensitivities than firms that appear more financially constrained. We find this pattern for the entire sample period, subperiods, and individual years. These results ...

Paramount Communications Inc. - 1993
Date Posted:Tue, 22 Apr 2008 04:07:12 -0500
SUBJECT AREAS: Valuation; mergers and acquisitions. CASE SETTING: 1993, Entertainment Industry. This case studies the takeover contest between Viacom and QVC for Paramount Communications. The Paramount 1993 case focuses on the events and situation leading up to the initial bid for Paramount by Viacom in September of 1993. Paramount 1993 has two primary roles. First, I have used Paramount 1993 successfully with MBAs and executives as a comprehensive valuation case. It should be ...

Paramount Communications, Inc. - 1994
Date Posted:Tue, 22 Apr 2008 04:06:00 -0500
SUBJECT AREAS: Valuation; mergers and acquisitions. CASE SETTING: 1994, Entertainment Industry. This case studies the takeover contest for Paramount Communications between Viacom and QVC. The case begins with Viacom's initial bid for Paramount in September 1993 and continues to the end of the contest between Viacom and QVC in February 1994. Paramount 1994 is a challenging case for MBAs. It has three primary roles. First, the case illustrates the issues involved in a takeover ...

Those Japanese Firms with Their Disdain for Shareholders: Another Fable for the Academy
Date Posted:Tue, 22 Apr 2008 04:04:36 -0500
From time to time, observers argue that important facets of corporate governance are explicable only in path-dependent terms. Some buttress this claim with comparisons between U.S. and Japanese patterns of corporate governance. Using data that Kaplan has discussed in other contexts, we dispute the empirical foundation of this path-dependence claim. In fact, we find that U.S. and Japanese governance patterns are remarkably similar. We suggest that this similarity may imply that competitive ...

The Value Maximizing Board
Date Posted:Tue, 22 Apr 2008 04:03:16 -0500
This paper compares board and director characteristics of reverse leveraged buyout (LBO) firms controlled by LBO specialists to those of an industry- and size-matched comparison sample. We consider the boards of the reverse LBOs to be value-maximizing because of the strong incentives the LBO specialists have to structure those boards in a way that maximizes shareholder value. Relative to the comparison firms, we find that the boards of the reverse LBOs are smaller, control larger equity ...

What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies
Date Posted:Tue, 22 Apr 2008 03:50:45 -0500
This paper analyzes the amount of information that can be extracted from stock prices around takeover contests. The first part of the paper shows that it is not generally possible to use target and bidder stock price movements to infer the market's estimates of synergies, bidder overpayment, and changes in bidder and target values. In two generic cases, however, we show that it is possible to use bidder and target stock prices to obtain market estimates of overpayment. In the second part of ...

The Effects of Business-to-Business E-Commerce on Transaction Costs
Date Posted:Tue, 22 Apr 2008 03:49:27 -0500
This paper studies transaction costs changes arising from the introduction of the Internet in transactions between firms. We divide transaction costs into coordination costs and motivation costs. We classify coordination efficiencies into three categories: process improvements, marketplace benefits, and indirect improvements. For motivation costs, we focus on informational asymmetries. We apply this framework to internal data from an Internet-based firm to measure process improvements, ...

The Value-Maximizing Board
Date Posted:Tue, 22 Apr 2008 03:42:46 -0500
This paper compares board and director characteristics of reverse leveraged buyout (LBO) firms controlled by LBO specialists to those of an industry- and size-matched comparison sample. We consider the boards of the reverse LBOs to be value-maximizing because of the strong incentives the LBO specialists have to structure those boards in a way that maximizes shareholder value. Relative to the comparison firms, we find that the boards of the reverse LBOs are smaller, control larger equity ...

New: Do Mutual Funds Time their Benchmarks?
Date Posted:Tue, 22 Apr 2008 03:12:04 -0500
We investigate whether mutual funds time their self-designated benchmark indexes. Using data on fund portfolio holdings, we consider two possible sources of timing attempts: variation in cash holdings and variation in the benchmark beta of the fund portfolio. The results are mixed. Inconsistent with timing, funds do not successfully time the benchmark by varying their cash holdings. If anything, funds are more likely to increase cash or maintain high levels of cash before positive, not ...

The State of U.S. Corporate Governance: What's Right and What's Wrong?
Date Posted:Wed, 02 Apr 2008 04:38:31 -0500
The U.S. corporate governance system has recently been heavily criticized, largely as a result of failures at Enron, WorldCom, Tyco and some other prominent companies. Those failures and criticisms, in turn, have served as catalysts for legislative change (Sarbanes-Oxley Act of 2002) and regulatory change (new governance guidelines from the NYSE and NASDAQ). In this paper, we consider two questions. First, is it clear that the U.S. system has performed that poorly; is it really that bad? ...

Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?
Date Posted:Wed, 19 Mar 2008 06:11:52 -0500
This paper investigates the sources of the correlation between corporate cash flow and investment by undertaking an in-depth analysis of the 49 low-dividend firms identified by Fazzari, Hubbard, and Petersen (1988) as having an unusually high investment-cash flow sensitivity. We find that in only 15% of firm-years is there some question as to a firm's ability to access internal or external funds to increase investment. Strikingly, those firms that appear less financially constrained exhibit ...

The Staying Power of Leveraged Buyouts
Date Posted:Mon, 25 Feb 2008 12:45:29 -0600
This paper documents the organizational status over time of 183 large leveraged buyouts (LBOs) completed between 1979 and 1986. As of August 1990, 63% of the LBOs are private owned, 14% are independent public companies, and 23% are owned by other public companies. As time since the LBO increases, the percentages of LBOs that have returned to public ownership increases. The (unconditional) median time LBOs remain private equals 6.70 years. This evidence suggests that the majority of LBO ...

Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S.
Date Posted:Mon, 25 Feb 2008 12:43:11 -0600
This paper compares CEO and top management turnover and its relation to firm performance in the larges companies (by sales) in Japan and the U.S. Japanese top managers are older and have shorter tenures as top managers than their U.S counterparts. Overall, however, turnover-performance relations are economically and statistically similar: turnover is negatively related to stock, sales, and earnings performance in both countries. Turnover in Japan is particularly sensitive to low earnings ...

Effects of LBOs on Tax Revenues of the U.S. Treasury
Date Posted:Mon, 25 Feb 2008 12:40:51 -0600
In this report, the tax effects of leveraged buyouts (LBOs) based on the current tax law and data from LBOs during the period 1979 through 1985 are examined. The analysis challenges the argument that LBOs result in net losses of tax revenues to the U.S. Treasury. Five ways are shown in which LBOs can generate incremental revenues to the U.S. Treasury: increased capital gains taxes for shareholders; increased operating revenues; interest income earned by LBO creditors; more efficient use of ...

REVISION: Which CEO Characteristics and Abilities Matter?
Date Posted:Thu, 13 Dec 2007 20:13:59 -0600
Using a dataset of assessments of CEO candidates for companies involved in private equity transactions (PE) - buyout (BO) and venture capital (VC) - we study how CEO characteristics and abilities relate to hiring decisions, PE investment decisions, and subsequent performance. CEOs are assessed in seven general areas - leadership, personal, intellectual, motivational, interpersonal, technical and functional. The ratings of different characteristics and abilities are generally correlated. For ...

REVISION: Which CEO Characteristics and Abilities Matter?
Date Posted:Fri, 09 Nov 2007 06:13:19 -0600
Using a dataset of assessments of CEO candidates for companies involved in private equity transactions (PE) - buyout (BO) and venture capital (VC) - we study how CEO characteristics and abilities relate to hiring decisions, PE investment decisions, and subsequent performance. CEOs are assessed in seven general areas - leadership, personal, intellectual, motivational, interpersonal, technical and functional. The ratings of different characteristics and abilities are generally correlated. ...

New: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Fri, 05 Oct 2007 00:26:12 -0500
We consider how much of the top end of the income distribution can be attributed to four sectors -- top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%).

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Mon, 01 Oct 2007 13:10:17 -0500
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%).

REVISION: Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Bus
Date Posted:Sat, 01 Sep 2007 03:10:53 -0500
We study how firm characteristics evolve from early business plan to IPO to public company for 50 venture capital (VC) financed companies. We find that firm business lines remain remarkably stable while management turnover is substantial. Management turnover is positively related to the formation of alienable assets. We obtain similar results from an out-of-sample analysis of all 2004 IPOs indicating that our main results are not specific to VC-backed firms or to the time period. The results ...

New: Top Executives, Turnover and Firm Performance in Germany
Date Posted:Wed, 08 Aug 2007 01:29:17 -0500
No abstract is available for this paper.

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Fri, 20 Jul 2007 21:41:22 -0500
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%).

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Mon, 09 Jul 2007 23:42:14 -0500
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%).

REVISION: Which CEO Characteristics and Abilities Matter?
Date Posted:Tue, 20 Mar 2007 17:38:29 -0500
Using a dataset of assessments of CEO candidates for companies involved in private equity transactions (PE) - buyout (BO) and venture capital (VC) - we study how CEO characteristics and abilities relate to hiring decisions, PE investment decisions, and subsequent performance. CEOs are assessed in seven general areas - leadership, personal, intellectual, motivational, interpersonal, technical and functional. The ratings of different characteristics and abilities are generally correlated. ...

New: 'Outside' Intervention in Japanese Companies: Its Determinants and Implications for Mangers
Date Posted:Tue, 02 Jan 2007 23:33:05 -0600
No abstract is available for this paper.

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Thu, 30 Nov 2006 07:32:52 -0600
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 8% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%) ...

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Wed, 22 Nov 2006 08:43:50 -0600
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 8% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%) ...

New: How has CEO Turnover Changed? Increasingly Performance Sensitive Boards and Increasingly Uneasy CEOs...
Date Posted:Tue, 14 Nov 2006 23:12:21 -0600
We study CEO turnover - both internal (board driven) and external (through takeover and bankruptcy) - from 1992 to 2005 for a sample of large U.S. companies. Annual CEO turnover is higher than that estimated in previous studies over earlier periods. Turnover is 14.9% from 1992 to 2005, implying an average tenure as CEO of less than seven years. In the more recent period since 1998, total CEO turnover increases to 16.5%, implying an average tenure of just over six years. Internal turnover ...

New: How Well do Venture Capital Databases Reflect Actual Investments?
Date Posted:Sat, 21 Oct 2006 23:03:42 -0500
Researchers increasingly have used the two primary venture capital databases - VentureOne and Venture Economics - to study venture capital (VC) financings. These data are largely self-reported. In this paper, we compare the actual contracts in 143 VC financings to their characterizations in the databases. The databases exclude roughly 15% of the financing rounds. The Venture Economics database oversamples larger rounds and California companies while the financing rounds included in the ...

REVISION: What are Firms? Evolution from Early Business Plans to Public Companies
Date Posted:Fri, 20 Oct 2006 03:39:51 -0500
We study how firm characteristics evolve from early business plan to initial public offering (IPO) to public company for 50 venture capital (VC) financed companies. We describe the financial performance, line of business, point(s) of differentiation, non-human capital assets, growth strategy, top management, and ownership structure. The most striking finding is that firm business lines or ideas remain remarkably stable from business plan through public company. Within those business lines, ...

REVISION: What are Firms? Evolution from Early Business Plans to Public Companies
Date Posted:Sat, 14 Oct 2006 22:10:33 -0500
We study how firm characteristics evolve from early business plan to initial public offering (IPO) to public company for 50 venture capital (VC) financed companies. We describe the financial performance, line of business, point(s) of differentiation, non-human capital assets, growth strategy, top management, and ownership structure. The most striking finding is that firm business lines or ideas remain remarkably stable from business plan through public company. Within those business lines, ...

REVISION: Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?
Date Posted:Wed, 20 Sep 2006 18:57:31 -0500
We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 8% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%) ...

Entrepreneurial Finance and Private Equity: Course Description and Course Syllabus
Date Posted:Mon, 06 Mar 2006 01:23:49 -0600
This course uses a combination of cases and academic articles to study entrepreneurial finance and, more broadly, private equity finance. The course is motivated by recent large increases in both the supply of and demand for private equity. The primary objective of this course is to provide an understanding of the concepts and institutions involved in entrepreneurial finance and private equity markets. To do this, the course explores private equity from a number of perspectives, beginning ...

What are Firms? Evolution from Birth to Public Companies
Date Posted:Tue, 10 Jan 2006 06:29:52 -0600
We study how firm characteristics evolve from early business plan, to initial public offering, to public company for 49 venture capital financed companies. The average time elapsed is almost six years. We describe the financial performance, business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of those firm ...

What Are Firms? Evolution from Birth to Public Companies
Date Posted:Mon, 24 Oct 2005 04:28:21 -0500
We study how firm characteristics evolve from early business plan to initial public offering to public company for 49 venture capital financed companies. The average time elapsed is almost 6 years. We describe the financial performance, business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of those firm attributes ...

REVISION: What are Firms? Evolution from Birth to Public Companies
Date Posted:Wed, 16 Feb 2005 01:32:44 -0600
We study how firm characteristics evolve from early business plan to initial public offering to public company for 49 venture capital financed companies. The average time elapsed is almost 6 years. We describe financial performance, the business idea, point(s) of differentiation, non-human capital assets, growth strategy, customers, competitors, alliances, top management, ownership structure, and the board of directors. Our analysis focuses on the nature and stability of these firm ...

What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies
Date Posted:Mon, 10 Jan 2005 05:13:30 -0600
We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. Even in these two cases, we argue that it is practically difficult to extract this information. We illustrate one of these generic cases using the takeover contest for Paramount in 1994 in which Viacom overpaid by more than $2 billion. Our ...

The Holding Period Distinction of the Capital Gains Tax
Date Posted:Thu, 19 Aug 2004 05:40:20 -0500
No abstract is available for this paper.

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Mon, 26 Jul 2004 00:32:07 -0500
We analyze venture capital (VC) investments in twenty-three non-U.S. countries and compare them to U.S. VC investments. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. However, more experienced VCs implement U.S.-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use U.S.-style contracts ...

The Evolution of Buyout Pricing and Financial Structure
Date Posted:Fri, 09 Jul 2004 01:53:52 -0500
No abstract is available for this paper.

The Success of Acquisitions: Evidence from Disvestitures
Date Posted:Sun, 04 Jul 2004 15:41:26 -0500
This paper studies a sample of large acquisitions completed between 1971 and 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. Using the accounting gain or loss recognized by the acquirer, press reports, and the sale price, we characterize the ex post success of the divested acquisitions and consider only 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer and target) returns at the acquisition announcement are ...

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Fri, 30 Jan 2004 05:52:34 -0600
We analyse venture capital (VC) investments in 23 non-US countries and compare them to VC investments in the US. We describe how the contracts allocate cash flow, board, liquidation, and other control rights. In univariate analyses, contracts differ across legal regimes. At the same time, however, more experienced VCs implement US-style contracts regardless of legal regime. In most specifications, legal regime becomes insignificant controlling for VC sophistication. VCs who use US-style ...

Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
Date Posted:Wed, 26 Nov 2003 06:13:25 -0600
This paper describes and considers explanations for changes in corporate governance and merger activity in the United States since 1980. Corporate governance in the 1980s was dominated by intense merger activity distinguished by the prevalence of leveraged buyouts (LBOs) and hostility. After a brief decline in the early 1990s, substantial merger activity resumed in the second half of the decade, while LBOs and hostility did not. Instead, internal corporate governance mechanisms appear to ...

What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies
Date Posted:Thu, 17 Oct 2002 00:38:44 -0500
We present a framework for determining the information that can be extracted from stock prices around takeover contests. In only two types of cases is it theoretically possible to use stock price movements to infer bidder overpayment and relative synergies. The takeover contest for Paramount in 1994 illustrates one of these generic cases. We estimate that Viacom, the 'winning' bidder, overpaid for Paramount by more than $2 billion. This occurred despite the fact that Viacom's CEO owned roughly ...

The Effects of Business-to-Business E-Commerce on Transaction Costs
Date Posted:Fri, 06 Sep 2002 05:20:55 -0500
In this paper, we study the changes in transaction costs from the introduction of the Internet in transactions between firms (i.e., business-to-business (B2B) e-commerce). We begin with a conceptual framework to organize the changes in transaction costs that are likely to result when a transaction is transferred from a physical marketplace to an Internet-based one. Following Milgrom and Roberts (1992), we differentiate between the impact on coordination costs and motivation costs. We argue ...

Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Wed, 22 May 2002 02:48:24 -0500
We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater ...

Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Fri, 17 May 2002 00:28:40 -0500
We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater ...

Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Wed, 10 Apr 2002 04:43:45 -0500
We study the investment analyses of 67 portfolio investments by 11 venture capital (VC) firms. VCs consider the attractiveness and risks of the business, management, and deal terms as well as expected post-investment monitoring. We then consider the relation of the analyses to the contractual terms. Greater internal and external risks are associated with more VC cash flow rights, VC control rights; greater internal risk, also with more contingencies for the entrepreneur; and greater ...

Corporate Governance and Merger Activity in the U.S.: Making Sense of the 1980s and 1990s
Date Posted:Wed, 26 Dec 2001 02:17:44 -0600
This paper describes and considers explanations for changes in corporate governance and merger activity in the United States since 1980. Corporate governance in the 1980s was dominated by intense merger activity distinguished by the prevalence of leveraged buyouts (LBOs) and hostility. After a brief decline in the early 1990s, substantial merger activity resumed in the second half of the decade, while LBOs and hostility did not. Instead, internal corporate governance mechanisms appear to have ...

Berg Electronics Corporation
Date Posted:Wed, 01 Aug 2001 07:54:19 -0500
SUBJECT AREAS: Business Valuation, Financial Forecasting, Strategic Analysis. CASE SETTING: 1996, U.S. In the Spring of 1996 Berg Electronics is poised to become a publicly traded company after going through a "build-up" leveraged buyout by Hicks, Muse, Tate, and Furst (HMTF). HMTF purchased Berg from DuPont in 1993 for $370 million then added over $100 million in acquisitions between 1993 and 1995. In February 1996 Jack Furst, the HMTF partner in charge of the Berg acquisition, was ...

Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contract...
Date Posted:Mon, 09 Apr 2001 16:08:05 -0500
In this paper, we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory. We do so by conducting a detailed study of actual contracts between venture capitalists (VCs) and entrepreneurs. We consider VCs to be the real world entities who most closely approximate the investors of theory. (1) The distinguishing characteristic of VC financings is that they allow VCs to separately allocate cash flow rights, voting rights, board ...

Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints
Date Posted:Sun, 01 Apr 2001 16:06:36 -0500
Kaplan and Zingales [1997] provide both theoretical arguments and empirical evidence that investment-cash flow sensitivities are not good indicators of financing constraints. Fazzari, Hubbard and Petersen [1999] criticize those findings. In this note, we explain how the Fazzari et al. [1999] criticisms are either very supportive of the claims in Kaplan and Zingales [1997] or incorrect. We conclude with a discussion of unanswered questions.

Venture Capitalists As Principals: Contracting, Screening, and Monitoring
Date Posted:Sat, 31 Mar 2001 04:35:15 -0600
Theoretical work on the principal-agent problem in financial contracting focuses on the conflicts of interest between an agent / entrepreneur with a venture that needs financing, and a principal / investor providing funds for the venture. Theory has identified three primary ways that the investor / principal can mitigate these conflicts - structuring financial contracts, pre-investment screening, and post-investment monitoring and advising. In this paper, we describe recent empirical work ...

How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Be...
Date Posted:Wed, 06 Sep 2000 10:40:27 -0500
This paper studies thirty-one highly leveraged transactions (HLTs) of the 1980s that subsequently became financially distressed. At the time of distress, all sample firms have operating margins that are positive and in the majority of cases greater than the median for the industry. Therefore, we consider these firms financially distressed, not economically distressed. The net effect of the HLT and financial distress is a slight increase in value -- from pre-transaction to distress ...

Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contract...
Date Posted:Sun, 23 Jul 2000 07:46:04 -0500
In this paper, we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory. We do so by conducting a detailed study of actual contracts between venture capitalists (VCs) and entrepreneurs. We consider VCs to be the real world entities who most closely approximate the investors of theory. (1) The distinguishing characteristic of VC financings is that they allow VCs to separately allocate cash flow rights, voting rights, board ...

How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that ...
Date Posted:Thu, 20 Jul 2000 05:45:17 -0500
This paper studies thirty-one highly leveraged transactions (HLTs) of the 1980s that subsequently become financially distressed. At the time of distress, all sample firms have operating margins that are positive and in the majority of cases greater than the median for the industry. We argue that these firms, therefore, are financially distressed, not economically distressed. The net effect of the HLT and financial distress is a slight increase in value -- from the pre-transaction to distress ...

A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organizational Design, Inc...
Date Posted:Thu, 06 Jul 2000 15:03:37 -0500
This paper presents clinically-based studies of two acquisitions that received very different stock market reactions at announcement one positive and one negative. Despite the differing market reactions, we find that ultimately neither acquisition created value overall. In exploring the reasons for the acquisition outcomes, we rely primarily on interviews with managers and on internally generated performance data. We compare the results of these analyses to those from analyses of ...

The Valuation of Cash Flow Forecasts: An Empirical Analysis
Date Posted:Sun, 11 Jun 2000 01:58:19 -0500
This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also ...

A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organization Design, Incen...
Date Posted:Mon, 31 Jan 2000 00:22:27 -0600
This paper presents clinically-based studies of two acquisitions that received very different stock market reactions at announcements one positive and one negative. Despite the differing market reactions, we find that, ultimately, neither acquisition created value overall. In exploring the reasons for the acquisition outcomes, we rely primarily on interviews with managers and on internally generated performance data. We compare the results of these analyses to those from analyses of ...

Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S
Date Posted:Sun, 24 Oct 1999 08:13:49 -0500
This paper studies top executive turnover and compensation, and their relation to firm performance in the largest Japanese and U.S. companies. Japanese executive turnover and compensation are related to earnings, stock return, and sales performance measures. The fortunes of Japanese top executives, therefore, are positively correlated with stock performance and with current cash flows (or with factors contributing to such performance). The relations for the Japanese executives are generally ...

Do Investment-Cashflow Sensitivities Provide Useful Measures of Financing Constraints?
Date Posted:Thu, 25 Jun 1998 14:56:08 -0500
This paper investigates the relationship between financing constraints and investment-cash flow sensitivities by analyzing the firms identified by Fazzari, Hubbard, and Petersen [1988] as having unusually high investment-cash flow sensitivities. We find that firms that appear less financially constrained exhibit significantly greater sensitivities than firms that appear more financially constrained. We find this pattern for the entire sample period, sub-periods, and individual years. These ...