Private equity firm | EPFL Graph Search

A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including leveraged buyout, venture capital, and growth capital. Often described as a financial sponsor, each firm will raise funds that will be invested in accordance with one or more specific investment strategies. Typically, a private equity firm will raise pools of capital, or private-equity funds that supply the equity contributions for these transactions. Private equity firms will receive a periodic management fee as well as a share in the profits earned (carried interest) from each private-equity fund managed. Private equity firms, with their investors, will acquire a controlling or substantial minority position in a company and then look to maximize the value of that investment. Private equity firms generally receive a return on their investments t

Essays in Financial Economics

Kornelia Fabisik

This thesis consists of three parts that study separate subjects in corporate finance and corporate governance. The overarching theme is ownership by CEOs and other insiders. In the first part, which is co-authored work with Rüdiger Fahlenbrach, René M. Stulz, and Jerôme Taillard, we build the largest database of managerial ownership information ever used in the literature. We show that the empirical relation between a firm's Tobin's q and managerial ownership is systematically negative. When we restrict our sample to larger firms as in the prior literature, we confirm earlier findings of an increasing and concave relation between Tobin's q and managerial ownership. We show that cumulative past performance and liquidity can explain these seemingly contradictory results. Better performing firms have more liquid equity, which enables firms and insiders to more easily sell shares after the IPO, and they also have a higher Tobin's q. In the second part, I conduct the first large-scale empirical analysis of the pledging phenomenon among U.S. CEOs. Pledging allows the owner of shares to put them up as collateral to a third party in exchange for cash. I show that between 2007 and 2016, 7.6% of publicly listed U.S. firms disclosed that their CEOs had pledged company stock as collateral for a loan. On average, CEOs pledge 38% of their shares. The mean loan value is an economically sizeable $65 million. CEOs use the funds to either double down (6.0%), hedge their ownership (3.5%), or to obtain liquidity while maintaining ownership (90.5%). My event study results reveal that stock market participants view pledging as value-enhancing. Similarly, I find no evidence of its negative shareholder value consequences, except for CEOs who engage in significant pledging. In the third part, I provide the first in-depth analysis of U.S. pledging CEOs who faced margin calls. A margin call occurs whenever the value of collateral backing a loan falls below a certain pre-specified amount. I find that 15% of CEOs with margin loans have at some point faced margin-call-induced selling. The mean (median) drop in CEO ownership following margin-call-induced sales is 31.2% (22.0%). More than 87% of firms do not introduce any type of an anti-pledging policy post margin-call sales by their CEOs which could explain the absence of any major changes in CEO compensation contracts. Corporate policies in firms with CEOs who lost a sizeable ownership stake are not indicative of weakened incentives.

EPFL2020

Corporate governance and capital structure dynamics

Erwan Morellec, Boris Nikolov, Norman Schuerhoff

We develop a dynamic tradeoff model to examine the importance of managershareholder conflicts in capital structure choice. In the model, firms face taxation, refinancing costs, and liquidation costs. Managers own a fraction of the firms equity, capture part of the free cash flow to equity as private benefits, and have control over financing decisions. Using data on leverage choices and the models predictions for different statistical moments of leverage, we find that agency costs of 1.5% of equity value on average are sufficient to resolve the low-leverage puzzle and to explain the dynamics of leverage ratios. Our estimates also reveal that agency costs vary significantly across firms and correlate with commonly used proxies for corporate governance.

2012

Producer cooperatives influence on competitive dynamics: the Azorean case

Joana Rodrigues Pereira

The aim of this paper is twofold: first, I aim at understanding how producer cooperatives compete in the factor markets; and second, I analyse how producer cooperatives influence the competitive dynamics of the markets where they compete. With this paper we aim at bringing a strategic perspective of this phenomenon. This paper follows a single case study qualitative analysis. The empirical context is the dairy market of the Azorean island Sao Miguel (in Portugal), more specifically, the milk factor market. This empirical context is adequate for the following reasons: first, because it is possible to isolate the market and its players in a quasi-experimental fashion (because it is a island); second, it presents a stable cooperative tradition; and third, cooperatives compete side-by-side with private firms (the cooperative Union represent 50% of the factor dairy market and the 3 other private firms represent the remaining 50%). The main data sources were local newspaper articles (322 in total) and interviews (31 in total with all market players). The data was coded in different categories, such as players’ characteristics, strategic positioning, strategic moves, and context/external shocks. The results reveal that on the factor market side, as buyer, the cooperative presents a “proudly first” positioning. This buyer positioning reflects the effort of the cooperative to always set the higher price and the best conditions on the factor market. This positioning contrasts with other private players that have adopted “Please stay” and “I don’t care” positioning. The results have also point out that the increase of the cooperative market share in the factor market, is leading to increased market competition. There is evidence that the cooperative is driving up the total number of strategic moves in the market that were predominantly oriented to price increases. On the theoretical part, some interesting inputs emerged on the concept of buyers strategic positioning. The results also challenge competitive dynamics studies, which defend that when the concentration in the market increases, the competitive activity decreases. Surprisingly, I have observed the opposite effect and I argue that is due to the cooperative influence. Additionally, the paper defends that producer cooperatives are able to drive factor market competition in markets where there are severe asymmetries of power. Such studies can increase our knowledge about the local impact of cooperatives and the circumstances under which cooperatives are an efficient alternative to the public and private sectors.