Market conditions and the exit rate of private equity investments in an emerging economy
Journal Title: BAR: Brazilian Administration Review - Year 2019, Vol 16, Issue 2
Abstract
Private Equity (PE) funds are active investors. Besides providing capital, they improve the governance, operational performance and innovation of the investee companies. However, potential misalignment between the fund manager and the company owner regarding exit timing is a limitation of the model. PE funds have a finite-life, and thus they have to liquidate investments after holding them for a certain period. They tend to time the market to exploit favorable market conditions and obtain higher selling prices, and consequently, PE funds may divest before accomplishing the value creation plan. In this article, we use the hazard model to investigate the magnitude of the impact of market conditions on the exit rate of PE deals in Brazil, a volatile emerging economy, and if it increases the chances of exiting investments with holding periods shorter than two years. We analyze a sample of 470 PE deals invested between 1994 and 2014, and we investigate four variables related to market conditions: the stock market price-earnings ratio, the number of IPOs, the Brazilian real (the Brazilian currency) appreciation against the US dollar and the Brazilian interest rate. Our results show that favorable market conditions more than double the exit rate and increase the probability of quick flips.
Authors and Affiliations
Andréa Maria Accioly Fonseca Minardi, Adriana Bruscato Bortoluzzo, Piero Rosatelli, Priscila Fernandes Ribeiro
Keywords
Related Articles
- EP ID EP678994
- DOI 10.1590/1807-7692bar2019180070
- Views 169
- Downloads 0
Interactions between Corporate Governance, Bankruptcy Law and Firms' Debt Financing: the Brazilian Case
This paper examines the relationship between corporate governance level and the bankruptcy law for such debt variables as firms’ cost of debt and amount (and variation) of debt. Our empirical results are consistent with...
Meanings of Consumption and Abandonment: Understanding Smoking Cessation Symbolism
In consumption studies, very little attention has been focused on investigating abandonment and, more specifically, its symbolic dimension. The present study aims to investigate how meanings are created and negotiated...
The Determinants of Credit Rating: Brazilian Evidence
This study attempts to identify the determinant factors of credit rating in Brazil. The relevance of this proposal is based on the importance of the subject as well as the uniqueness of the Brazilian market. As for orig...
Brazilian Multinationals’ Ownership Mode: The Influence of Institutional Factors and Firm Characteristics
This work investigates whether host countries institutional factors and firm characteristics can help the understanding of Brazilian multinationals’ choices of ownership mode for their foreign direct investments (FDI)....
A Constructionist Approach for the Study of Strategy as Social Practice
The goal of this paper is to present an analytical perspective of strategy as social practice in organizations by the articulation of proposals by Foucault, Certeau and Moscovici on social dynamics. To accomplish its in...