Market conditions and the exit rate of private equity investments in an emerging economy
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....
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
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Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)
2019-07-01
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| Series: | BAR: Brazilian Administration Review |
| Subjects: | |
| Online Access: | http://www.scielo.br/pdf/bar/v16n2/1807-7692-bar-16-02-e180070.pdf |
| _version_ | 1797965261542785024 |
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| author | Andréa Maria Accioly Fonseca Minardi Adriana Bruscato Bortoluzzo Piero Rosatelli Priscila Fernandes Ribeiro |
| author_facet | Andréa Maria Accioly Fonseca Minardi Adriana Bruscato Bortoluzzo Piero Rosatelli Priscila Fernandes Ribeiro |
| author_sort | Andréa Maria Accioly Fonseca Minardi |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-04-11T01:57:15Z |
| format | Article |
| id | doaj.art-3ce76036672b4b5d83b0e178ef10bbec |
| institution | Directory Open Access Journal |
| issn | 1807-7692 |
| language | English |
| last_indexed | 2024-04-11T01:57:15Z |
| publishDate | 2019-07-01 |
| publisher | Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD) |
| record_format | Article |
| series | BAR: Brazilian Administration Review |
| spelling | doaj.art-3ce76036672b4b5d83b0e178ef10bbec2023-01-03T04:59:24ZengAssociação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)BAR: Brazilian Administration Review1807-76922019-07-01162e18007010.1590/1807-7692bar2019180070Market conditions and the exit rate of private equity investments in an emerging economyAndréa Maria Accioly Fonseca Minardi0Adriana Bruscato Bortoluzzo1Piero Rosatelli2Priscila Fernandes Ribeiro3Insper, BrazilInsper, BrazilInsper, BrazilInsper, BrazilPrivate 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.http://www.scielo.br/pdf/bar/v16n2/1807-7692-bar-16-02-e180070.pdfprivate equitymarket timinghazard modelexitholding period |
| spellingShingle | Andréa Maria Accioly Fonseca Minardi Adriana Bruscato Bortoluzzo Piero Rosatelli Priscila Fernandes Ribeiro Market conditions and the exit rate of private equity investments in an emerging economy BAR: Brazilian Administration Review private equity market timing hazard model exit holding period |
| title | 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_short | 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 |
| topic | private equity market timing hazard model exit holding period |
| url | http://www.scielo.br/pdf/bar/v16n2/1807-7692-bar-16-02-e180070.pdf |
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