Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy

Detalhes bibliográficos
Autor(a) principal: Minardi,Andréa Maria Accioly Fonseca
Data de Publicação: 2019
Outros Autores: Bortoluzzo,Adriana Bruscato, Rosatelli,Piero, Ribeiro,Priscila Fernandes
Tipo de documento: Artigo
Idioma: eng
Título da fonte: BAR - Brazilian Administration Review
Texto Completo: http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922019000200304
Resumo: 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.
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spelling Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economyprivate equitymarket timinghazard modelexitholding periodAbstract 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.ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração2019-01-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersiontext/htmlhttp://old.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922019000200304BAR - Brazilian Administration Review v.16 n.2 2019reponame:BAR - Brazilian Administration Reviewinstname:Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)instacron:ANPAD10.1590/1807-7692bar2019180070info:eu-repo/semantics/openAccessMinardi,Andréa Maria Accioly FonsecaBortoluzzo,Adriana BruscatoRosatelli,PieroRibeiro,Priscila Fernandeseng2019-08-06T00:00:00Zoai:scielo:S1807-76922019000200304Revistahttp://www.scielo.br/scielo.php?script=sci_serial&pid=1807-7692&lng=pt&nrm=isohttps://old.scielo.br/oai/scielo-oai.php||bar@anpad.org.br1807-76921807-7692opendoar:2019-08-06T00:00BAR - Brazilian Administration Review - Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)false
dc.title.none.fl_str_mv Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
title Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
spellingShingle Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
Minardi,Andréa Maria Accioly Fonseca
private equity
market timing
hazard model
exit
holding period
title_short Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
title_full Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
title_fullStr Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
title_full_unstemmed Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
title_sort Market Conditions and the Exit Rate of Private Equity Investments in an Emerging Economy
author Minardi,Andréa Maria Accioly Fonseca
author_facet Minardi,Andréa Maria Accioly Fonseca
Bortoluzzo,Adriana Bruscato
Rosatelli,Piero
Ribeiro,Priscila Fernandes
author_role author
author2 Bortoluzzo,Adriana Bruscato
Rosatelli,Piero
Ribeiro,Priscila Fernandes
author2_role author
author
author
dc.contributor.author.fl_str_mv Minardi,Andréa Maria Accioly Fonseca
Bortoluzzo,Adriana Bruscato
Rosatelli,Piero
Ribeiro,Priscila Fernandes
dc.subject.por.fl_str_mv private equity
market timing
hazard model
exit
holding period
topic private equity
market timing
hazard model
exit
holding period
description 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.
publishDate 2019
dc.date.none.fl_str_mv 2019-01-01
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
dc.type.status.fl_str_mv info:eu-repo/semantics/publishedVersion
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dc.identifier.uri.fl_str_mv http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922019000200304
url http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922019000200304
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 10.1590/1807-7692bar2019180070
dc.rights.driver.fl_str_mv info:eu-repo/semantics/openAccess
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dc.publisher.none.fl_str_mv ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração
publisher.none.fl_str_mv ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração
dc.source.none.fl_str_mv BAR - Brazilian Administration Review v.16 n.2 2019
reponame:BAR - Brazilian Administration Review
instname:Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)
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instname_str Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)
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reponame_str BAR - Brazilian Administration Review
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repository.name.fl_str_mv BAR - Brazilian Administration Review - Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)
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