Papers Containing Tag(s): 'Initial Public Offering'
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Viewing papers 21 through 25 of 25
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Working PaperHow Does Venture Capital Financing Improve Efficiency in Private Firms? A Look Beneath the Surface
June 2008
Working Paper Number:
CES-08-16
Using a unique sample from the Longitudinal Research Database (LRD) of the U.S. Census Bureau, we study several related questions regarding the efficiency gains generated by venture capital (VC) investment in private firms. First, does VC backing improve the efficiency (total factor productivity, TFP) of private firms, and are certain kinds of VCs (higher reputation versus lower reputation) better at generating such efficiency gains than others? Second, how are such efficiency gains generated: Do venture capitalists invest in more efficient firms to begin with (screening) or do they improve efficiency after investment (monitoring)? Third, how are these efficiency gains spread out over rounds subsequent to VC investment? Fourth, what are the channels through which such efficiency gains are generated: increases in product market performance (sales) or reductions in various costs (labor, materials, total production costs)? Finally, how do such efficiency gains affect the probability of a successful exit (IPO or acquisition)? Our main findings are as follows. First, the overall efficiency of VC backed firms is higher than that of non-VC backed firms. Second, this efficiency advantage of VC backed firms arises from both screening and monitoring: the efficiency of VC backed firms prior to receiving financing is higher than that of non-VC backed firms and further, the growth in efficiency subsequent to receiving VC financing is greater for such firms relative to non-VC backed firms. Third, the above increase in efficiency of VC backed firms relative to non-VC backed firms increases over the first two rounds of VC financing, and remains at the higher level till exit. Fourth, while the TFP of firms prior to VC financing is lower for higher reputation VC backed firms, the increase in TFP subsequent to financing is significantly higher for the former firms, consistent with higher reputation VCs having greater monitoring ability. Fifth, the efficiency gains generated by VC backing arise primarily from improvement in product market performance (sales); however for higher reputation VCs, the additional efficiency gains arise from both an additional improvement in product market performance as well as from reductions in various input costs. Finally, both the level of TFP of VC backed firms prior to receiving financing and the growth in TFP subsequent to VC financing positively affect the probability of a successful exit (IPO or acquisition).View Full Paper PDF
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Working PaperOn the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms
May 2008
Working Paper Number:
CES-08-13
We use a new data set that tracks U.S. firms from their birth over two decades to understand the life cycle dynamics and outcomes (both successes and failures) of VC- and non-VC financed firms. We first ask to what market-wide and firm-level characteristics venture capitalists respond in choosing to make their investments and how this differs for firms financed solely by non-VC sources of entrepreneurial capital. We then ask what are the eventual differences in outcomes for firms that receive VC financing relative to non-VC-financed firms. Our findings suggest that VCs follow public market signals similar to other investors and typically invest largely in young firms, with potential for large scale being an important criterion. The main way that VC financed firms differ from matched non-VC financed firms, is they demonstrate remarkably larger scale both for successful and failed firms, at every point of the firms' life cycle. They grow more rapidly, but we see little difference in profitability measures at times of exit. We further examine a number of hypotheses relating to VC-financed firms' failure. We find that VC-financed firms' cumulative failure rates are lower than non-VC-financed firms but the story is nuanced. VC appears initially 'patient' in that VC-financed firms are less likely to fail in the first five years but conditional on surviving past this point become more likely to fail relative to non-VC-financed firms. We perform a number of robustness checks and find that VC does not appear to have more stringent survival thresholds nor do VC-financed firm failures appear to be disguised as acquisitions nor do particular kinds of VC firms seem to be driving our results. Overall, our analysis supports the view that VC is 'patient' capital relative to other non-VC sources of entrepreneurial capital in the early part of firms' lifecycles and that an important criterion for receiving VC investment is potential for large scale, rather than level of profitability, prior to exit.View Full Paper PDF
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Working PaperPrivate Equity and Employment
March 2008
Working Paper Number:
CES-08-07R
Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3 percent over two years post buyout and 6 percent over five years. The job losses are concentrated among public-to-private buyouts, and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1 percent of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13 percent of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.View Full Paper PDF
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Working PaperVolatility and Dispersion in Business Growth Rates: Publicly Traded Versus Privately Held Firms
July 2006
Working Paper Number:
CES-06-17
We study the variability of business growth rates in the U.S. private sector from 1976 onwards. To carry out our study, we exploit the recently developed Longitudinal Business Database (LBD), which contains annual observations on employment and payroll for all U.S. businesses. Our central finding is a large secular decline in the cross sectional dispersion of firm growth rates and in the average magnitude of firm level volatility. Measured the same way as in other recent research, the employment-weighted mean volatility of firm growth rates has declined by more than 40% since 1982. This result stands in sharp contrast to previous findings of rising volatility for publicly traded firms in COMPUSTAT data. We confirm the rise in volatility among publicly traded firms using the LBD, but we show that its impact is overwhelmed by declining volatility among privately held firms. This pattern holds in every major industry group. Employment shifts toward older businesses account for 27 percent or more of the volatility decline among privately held firms. Simple cohort effects that capture higher volatility among more recently listed firms account for most of the volatility rise among publicly traded firms.View Full Paper PDF
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Working PaperThe Financial Performance of Whole Company LBOs
November 1993
Working Paper Number:
CES-93-16
Using the previously untapped Census Quarterly Financial Report (QFR) file, we explored the financial performance of a large unbiased sample of 209 leveraged buyouts (LBOs) and 48 going private transactions occurring between 1978 and 1989. Our principal findings are: First, we confirm previous work showing that LBOs substantially increase operating performance and reduce taxes. Second, we find that the operating performance gains are sustained for three years. However, there is a significant drop in performance in the fourth and fifth years. Performance in these years is not significantly above the pre- LBO level. Third, total debt to assets displays only a slight insignificant downward trend. Thus, high debt remains after the drop in performance. Fourth, we find evidence that the performance gains decline in the mid- to late 1980s, with the exception of 1989. Fifth, the data suggest that LBOs target typical firms. The only significant pre-LBO firm characteristic was lower bank debt relative to nonbank debt. Sixth, we identify a number of factors that differentiate LBO performance. Performance tends to be higher when pre-LBO performance is low and the firm is classified as a large R&D performer. Conversely, management buyouts and buyouts involving extensive restructuring did not outperform other buyouts. Finally, we observe a clear linkage between debt and performance, since nonleveraging going-private deals have significantly lower performance than LBOs.View Full Paper PDF
