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Private equity performance under extreme regulation

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  • Cumming, Douglas
  • Zambelli, Simona

Abstract

This study investigates the impact of excessive regulation on private equity (PE) returns and firm performance. History shows that extreme regulation and prohibition reduce the supply of capital and raise returns (e.g., as with drugs and diamonds). However, for value-added investors such as PE funds, extreme regulation also reduces the quality of capital and fund involvement. The net effect on returns is therefore ambiguous and heretofore not studied. With a new unique dataset, this paper empirically examines the performance of PE investments in Italy when leveraged buyouts are strictly regulated. The data show that extreme regulation reduces not only the supply of capital, but also PE returns and firm performance, as well as the likelihood of an IPO exit.

Suggested Citation

  • Cumming, Douglas & Zambelli, Simona, 2013. "Private equity performance under extreme regulation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1508-1523.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:5:p:1508-1523
    DOI: 10.1016/j.jbankfin.2012.04.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Minetti, Raoul & Murro, Pierluigi & Paiella, Monica, 2015. "Ownership structure, governance, and innovation," European Economic Review, Elsevier, vol. 80(C), pages 165-193.
    2. Arayssi, Mahmoud, 2015. "Captive Funds and Banks' Capital," MPRA Paper 64912, University Library of Munich, Germany.
    3. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0874-4 is not listed on IDEAS
    4. repec:eee:quaeco:v:64:y:2017:i:c:p:259-274 is not listed on IDEAS
    5. Johan, Sofia & Zhang, Minjie, 2016. "Private equity exits in emerging markets," Emerging Markets Review, Elsevier, vol. 29(C), pages 133-153.
    6. Elisa Ughetto, 2016. "Investments, Financing Constraints and Buyouts: the Effect of Private Equity Investors on the Sensitivity of Investments to Cash Flow," Manchester School, University of Manchester, vol. 84(1), pages 25-54, January.
    7. repec:eee:jbfina:v:88:y:2018:i:c:p:30-43 is not listed on IDEAS
    8. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    9. Baschieri, Giulia & Carosi, Andrea & Mengoli, Stefano, 2016. "Does the earnings quality matter? Evidence from a quasi-experimental setting," Finance Research Letters, Elsevier, vol. 19(C), pages 146-157.

    More about this item

    Keywords

    Private equity; Regulation; Performance; Law and finance;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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