Per Stromberg

REVISION: The Economic and Social Impact of Private Equity in Europe: Summary of Research Findings
Date Posted:Fri, 02 Oct 2009 23:00:00 -0500
The private equity industry has found itself caught up in the prevailing political debate concerning the need for reform of financial services regulation. However, much of the debate about private equity tends to be based on hearsay or, at best, isolated examples, with little reference to the real impact of the industry on the European economic model. The purpose of this short research summary is to bring some clarity to the areas of the private equity model that have been most debated. The ...

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Wed, 16 Sep 2009 23:00:00 -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.

REVISION: The Economic and Social Impact of Private Equity in Europe: Summary of Research Findings
Date Posted:Mon, 06 Jul 2009 23:00:00 -0500
The private equity industry has found itself caught up in the prevailing political debate concerning the need for reform of financial services regulation. However, much of the debate about private equity tends to be based on hearsay or, at best, isolated examples, with little reference to the real impact of the industry on the European economic model. The purpose of this short research summary is to bring some clarity to the areas of the private equity model that have been most debated. The ...

New: Leverage and Pricing in Buyouts: An Empirical Analysis
Date Posted:Wed, 18 Feb 2009 23:00:00 -0600
This paper provides an empirical analysis of the financial structure of large recent buyouts. We collect detailed information of the financings of 153 large buyouts (averaging over $1 billion in enterprise value). We document the manner in which these important transactions are financed. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by other factors than what explains leverage in public firms. In particular, the economy-wide ...

REVISION: Private Equity and Long-Run Investment: The Case of Innovation
Date Posted:Mon, 16 Feb 2009 23:00:00 -0600
A long-standing controversy is whether LBOs relieve managers from short-term pressures of dispersed shareholders, or whether LBO funds themselves are driven by short-term profit motives and sacrifice long-term growth to boost short-term performance. We investigate 495 transactions with a focus on one form of long-term activities, namely investments in innovation as measured by patenting activity. We find no evidence that LBOs decrease these activities. Relying on standard measures of patent ...

New: Private Equity and Long-Run Investment: The Case of Innovation
Date Posted:Thu, 29 Jan 2009 23:00:00 -0600
A long-standing controversy is whether LBOs relieve managers from short-term pressures from public shareholders, or whether LBO funds themselves are driven by short-term profit motives and sacrifice long-term growth to boost short-term performance. We investigate 495 transactions with a focus on one form of long-term activities, namely investments in innovation as measured by patenting activity. We find no evidence that LBOs are associated with a decrease in these activities. Relying on ...

REVISION: Private Equity and Long-Run Investment: The Case of Innovation
Date Posted:Mon, 22 Dec 2008 23:00:00 -0600
A long-standing controversy is whether LBOs relieve managers from short-term pressures of dispersed shareholders, or whether LBO funds themselves are driven by short-term profit motives and sacrifice long-term growth to boost short-term performance. We investigate 495 transactions with a focus on one form of long-term activities, namely investments in innovation as measured by patenting activity. We find no evidence that LBOs decrease these activities. Relying on standard measures of patent ...

Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Wed, 17 Sep 2008 23:00:00 -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:Wed, 27 Aug 2008 23:00:00 -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:Mon, 04 Aug 2008 23:00:00 -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:Sat, 02 Aug 2008 23:00:00 -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: Why are Buyouts Leveraged? The Financial Structure of Private Equity Firms
Date Posted:Sun, 18 May 2008 23:00:00 -0500
This paper presents a model of the financial structure of private equity firms. In the model, the general partner of the firm encounters a sequence of deals over time where the exact quality of each deal cannot be credibly communicated to investors. We show that the optimal financing arrangement is consistent with a number of characteristics of the private equity industry. First, the firm should be financed by a combination of fund capital raised before deals are encountered, and capital that ...

REVISION: Private Equity and Long-Run Investment: The Case of Innovation
Date Posted:Sat, 16 Feb 2008 23:00:00 -0600
A long-standing controversy is whether LBOs relieve managers from short-term pressures of dispersed shareholders, or whether LBO funds themselves are driven by short-term profit motives and sacrifice long-term growth to boost short-term performance. We investigate 495 transactions with a focus on one form of long-term activities, namely investments in innovation as measured by patenting activity. We find no evidence that LBOs decrease these activities. Relying on standard measures of patent ...

New: Leverage and Pricing in Buyouts: An Empirical Analysis*
Date Posted:Sat, 03 Nov 2007 00:00:00 -0500
This paper provides an empirical analysis of the financial structure of large recent buyouts. We collect detailed information of the financings of 153 large buyouts (averaging over $1 billion in enterprise value). We document the manner in which these important transactions are financed. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by other factors than what explains leverage in public firms. In particular, the economy-wide ...

REVISION: Should Investors Bet on the Jockey or the Horse? Evidence from the Evolution of Firms from Early Bus
Date Posted:Fri, 31 Aug 2007 23:00:00 -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: Why are Buyouts Levered: The Financial Structure of Private Equity Funds
Date Posted:Thu, 23 Aug 2007 23:00:00 -0500
This paper presents a model of the financial structure of private equity firms. In the model, the general partner of the firm encounters a sequence of deals over time where the exact quality of each deal cannot be credibly communicated to investors. We show that the optimal financing arrangement is consistent with a number of characteristics of the private equity industry. First, the firm should be financed by a combination of fund capital raised before deals are encountered, and capital that ...

New: How Well do Venture Capital Databases Reflect Actual Investments?
Date Posted:Sat, 21 Oct 2006 23:00:00 -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:Thu, 19 Oct 2006 23:00:00 -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 23:00:00 -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, ...

What are Firms? Evolution from Birth to Public Companies
Date Posted:Mon, 09 Jan 2006 23:00:00 -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:Sun, 23 Oct 2005 23:00:00 -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:Tue, 15 Feb 2005 23:00:00 -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 ...

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Sun, 25 Jul 2004 23:00:00 -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 ...

How Do Legal Differences and Learning Affect Financial Contracts?
Date Posted:Thu, 29 Jan 2004 23:00:00 -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 ...

Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses
Date Posted:Tue, 21 May 2002 23:00:00 -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:Thu, 16 May 2002 23:00:00 -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:Tue, 09 Apr 2002 23:00:00 -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 ...

Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contract...
Date Posted:Mon, 09 Apr 2001 23:00:00 -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 ...

Venture Capitalists As Principals: Contracting, Screening, and Monitoring
Date Posted:Fri, 30 Mar 2001 23:00:00 -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 ...

Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contract...
Date Posted:Sat, 22 Jul 2000 23:00:00 -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 ...

Conflicts of Interest and Market Illiquidity in Bankruptcy Auctions: Theory and Tests
Date Posted:Sun, 07 May 2000 23:00:00 -0500
I develop and estimate a model of cash auction bankruptcy using data on 205 Swedish firms. The results challenge earlier arguments that cash auctions, as compared to reorganizations, (1) are immune to conflicts of interest between claim holders, but (2) lead to inefficient liquidations. I show that a sale of the assets back to incumbent management is a common outcome of the bankruptcy auction. Such salebacks are more likely when they favor the bank at the expense of other creditors. Hence, ...