Trust, Politics and Post-IPO Performance: SOEs vs. the Private Sector
Bill Francis, Iftekhar Hasan, Xian Sun, Mingming Zhou
Economic and Political Studies,
No. 3,
2022
Abstract
This paper empirically investigates the role of social trust in the long-term performance of the initial public offerings (IPOs) in China, controlling for the formal institutional environment. We find that privately owned or smaller IPO firms experience significantly better post-IPO performance when they are incorporated in regions with more social trust. The state-owned and bigger IPO firms, on the other hand, experience better long-term post-IPO performance when they are incorporated in regions with stronger formal institutions (e.g. court enforcement and contract holding). Political pluralism turns out to benefit all IPOs in the long term. In addition, our evidence shows that stronger social trust substitutes for the quality of court enforcement but complements the role of contract holding. These results are robust after controlling for alternative definitions of ownership, outliers, non-linear effects of institutions, and the potential endogeneity of institutions in the model.
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The (Heterogenous) Economic Effects of Private Equity Buyouts
Steven J. Davis, John Haltiwanger, Kyle Handley, Josh Lerner, Ben Lipsius, Javier Miranda
IWH Discussion Papers,
No. 10,
2022
Abstract
The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.
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Local Product Market Competition and Bank Loans
Iftekhar Hasan, Yi Shen, Xiaoying Yuan
Journal of Corporate Finance,
2021
Abstract
We investigate the influences of local product market competition on the cost of private debt. Our evidence suggests that the cost of bank loans is significantly higher for firms headquartered in states with greater local product market competition measured by the Herfindahl-Hirschman Index for resident industries. To establish causality, we examine the recognition of the Inevitable Disclosure Doctrine and firm relocations to identify exogenous shocks to local product market competition. We find that the cost of bank loans is lower for firms facing less intense local product market competition after the adoption of IDD and higher for firms relocated to states with more competitive product markets. The results imply that banks value the characteristics of a firm's local product market when approving loan contracts.
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Access to Public Capital Markets and Employment Growth
Alexander Borisov, Andrew Ellul, Merih Sevilir
Journal of Financial Economics,
No. 3,
2021
Abstract
This paper examines the effect of going public on firm-level employment. To establish a causal effect, we employ a novel data set of private firms to investigate employment growth in IPO firms relative to a group of firms that file for an IPO but subsequently withdraw their offering. We find that employment increases significantly after going public, and the increase is more pronounced in industries with requirements for highly skilled labor and greater dependence on external finance. Improved ability to undertake acquisitions and a strategic shift toward commercialization, rather than agency problems, explain employment growth. Overall, these results highlight the importance of going public for firms' employment policies.
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Measuring the Impact of Household Innovation Using Administrative Data
Javier Miranda, Nikolas Zolas
Measuring and Accounting for Innovation in the Twenty-First Century,
NBER Studies in Income and Wealth, Vol 78 /
2021
Abstract
We link USPTO patent data to U.S. Census Bureau administrative records on individuals and firms. The combined dataset provides us with a directory of patenting household inventors as well as a time-series directory of self-employed businesses tied to household innovations. We describe the characteristics of household inventors by race, age, gender and U.S. origin, as well as the types of patented innovations pursued by these inventors. Business data allows us to highlight how patents shape the early life-cycle dynamics of nonemployer businesses. We find household innovators are disproportionately U.S. born, white and their age distribution has thicker tails relative to business innovators. Data shows there is a deficit of female and black inventors. Household inventors tend to work in consumer product areas compared to traditional business patents. While patented household innovations do not have the same impact of business innovations their uniqueness and impact remains surprisingly high. Back of the envelope calculations suggest patented household innovations granted between 2000 and 2011 might generate $5.0B in revenue (2000 dollars).
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Financial Analysts' Career Concerns and the Cost of Private Debt
Bill Francis, Iftekhar Hasan, Liuling Liu, Qiang Wu, Yijiang Zhao
Journal of Corporate Finance,
April
2021
Abstract
Career-concerned analysts are averse to firm risk. Not only does higher firm risk require more effort to analyze the firm, thus constraining analysts' ability to earn more remuneration through covering more firms, but it also jeopardizes their research quality and career advancement. As such, career concerns incentivize analysts to pressure firms to undertake risk-management activities, thus leading to a lower cost of debt. Consistent with our hypothesis, we find a negative association between analyst career concerns and bank loan spreads. In addition, our mediation analysis suggests that this association is achieved through the channel of reducing firm risk. Additional tests suggest that the effect of analyst career concerns on loan spreads is more pronounced for firms with higher analyst coverage. Our study is the first to identify the demand for risk management as a key channel through which analysts help reduce the cost of debt.
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The State Expropriation Risk and the Pricing of Foreign Earnings
Iftekhar Hasan, Ibrahim Siraj, Amine Tarazi, Qiang Wu
Journal of International Accounting Research,
No. 2,
2021
Abstract
We examine the pricing of U.S. multinational firms' foreign earnings in regard to their risk of expropriation and unfair treatment by the governments of the countries in which their international subsidiaries are located. Using 8,891 firm-years observations during the 2001–2013 period, we find that the value relevance of foreign earnings increases with the improvement of the protection from state expropriation risk in the subsidiary host-countries. Our results are not driven by the earnings management practice, investor distraction, country informativeness, and political and trade relationship of a foreign country with the U.S. Furthermore, our results are robust to the confounding effects of country factors, measurement error in the variable of the risk of expropriation, the influence of private contracting institutions, and endogeneity in the decision of the location of subsidiaries.
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Private Equity in the Hospital Industry
Janet Gao, Yongseok Kim, Merih Sevilir
ECGI Working Paper,
No. 787,
2021
Abstract
We examine employment and patient outcomes at hospitals acquired by private equity (PE) firms and PE-backed hospitals. While employment declines at PE-acquired hospitals, core medical workers (physicians, nurses, and pharmacists) increase significantly. The proportion of wages paid to core workers increases at PE-acquired hospitals whereas the proportion paid to administrative employees declines. These results are most pronounced for deals where the acquirers are publicly traded PE-backed hospitals. Non-PE-backed acquirers also cut employment but do not increase core workers or reduce administrative expenditures. Finally, PE-backed acquirers are not associated with worse patient satisfaction or mortality rates compared to their non-PE-backed counterparts.
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Identifying Cooperation for Innovation―a Comparison of Data Sources
Michael Fritsch, Mirko Titze, Matthias Piontek
Industry and Innovation,
No. 6,
2020
Abstract
The value of social network analysis is critically dependent on the comprehensive and reliable identification of actors and their relationships. We compare regional knowledge networks based on different types of data sources, namely, co-patents, co-publications, and publicly subsidized collaborative R&D projects. Moreover, by combining these three data sources, we construct a multilayer network that provides a comprehensive picture of intraregional interactions. By comparing the networks based on the data sources, we address the problems of coverage and selection bias. We observe that using only one data source leads to a severe underestimation of regional knowledge interactions, especially those of private sector firms and independent researchers.
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Private Equity and Portfolio Companies: Lessons From the Global Financial Crisis
Shai B. Bernstein, Josh Lerner, Filippo Mezzanotti
Journal of Applied Corporate Finance,
No. 3,
2020
Abstract
Critics of private equity have warned that the high leverage often used in PE-backed companies could contribute to the fragility of the financial system during economic crises. The proliferation of poorly structured transactions during booms could increase the vulnerability of the economy to downturns. The alternative hypothesis is that PE, with its operating capabilities, expertise in financial restructuring, and massive capital raised but not invested ("dry powder"), could increase the resilience of PE-backed companies. In their study of PE-backed buyouts in the U.K. - which requires and thereby makes accessible more information about private companies than, say, in the U.S. - the authors report finding that, during the 2008 global financial crisis, PE-backed companies decreased their overall investments significantly less than comparable, non-PE firms. Moreover, such PE-backed firms also experienced greater equity and debt inflows, higher asset growth, and increased market share. These effects were especially notable among smaller, riskier PE-backed firms with less access to capital, and also for those firms backed by PE firms with more dry powder at the crisis onset. In a survey of the partners and staff of some 750 PE firms, the authors also present compelling evidence that PEs firms play active financial and operating roles in preserving or restoring the profitability and value of their portfolio companies.
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