Equity Performance Research Articles

Private Equity and Venture Capital Growth and Performance in Emerging Markets

Brazil was one of the emerging markets that most received Private Equity (PE) and Venture Capital (VC) investments in the last 10 years. The industry is fairly new in the country, with a limited number of experienced managers. As many PE firms have raised new funds greater than USD 1 billion, the number of investments managed simultaneously has increased, thus putting pressure on PE/VC firms to hire and train new members for their teams. The aim of this study is to investigate whether this growth has compromised investment performance. Our data was collected in PPMs (Private Placement Memorandum) from 1994 to 2014, totalizing 311 deals. We find evidence that a greater number of simultaneous deals decrease the probability of total loss for both PE and for VC, possibly reflecting the improvement in the investment selection process. However, when we analyze only the PE investments that returned at least part of the invested capital, our results indicate that an increase in simultaneously managed deals has a negative effect on performance, probably reflecting a drop in the efficiency in monitoring them. When it comes to VC, we find weak evidence that a larger number of deals simultaneously managed can positively affect the return.

The impacts of Small and Medium-sized Bank Loan on Bank's Equity Ratio and Performance in Korean Banking Industry

The impacts of Small and Medium-sized Bank Loan on Bank's Equity Ratio and Performance in Korean Banking Industry

A study on performance of equity linked tax saving mutual fund schemes in India

Privatization of Indian mutual fund industry has led to proliferation of mutual funds schemes. It takes many forms such as income funds, equity diversified funds, balanced funds, liquid funds, money market funds, Gilt funds, Equity linked tax saving schemes (ELSS), Exchange traded funds and overseas fund of funds. Equity linked tax saving is one of the recent origin with tax saving feature under sec. 80C of Income Tax Act 1961. It also gives investor the twin-advantage of capital appreciation and tax benefits. The period of study is two years, from July 2014-June 2016. 32 open-ended ELSS mutual funds which have been operating for more than two years and performing during the period of study (i.e. July 2014-June 2016) and for which the data were available on continuous basis is taken for the study. The study has used Sharpe, Treynor and Jensen performance measure to evaluate the fund's performance. Funds risk has been analysed using standard deviation and beta. According to study results the top 5 funds are Franklin India Tax shield-Growth, Axis Long Term Equity Fund-Growth, Escorts Tax Plan-Growth, IDBI Equity Advantage Fund-Growth Regular and Birla Sun Life Relief 96-Growth Option. By investing in these funds investor can get annualised return ranging from 23.28 percent to 15.47 percent. The bottom 5 five funds are HSBC Tax Saver Equity Fund-Growth, Union KBC Tax Saver Scheme-Growth Option, Taurus Tax Shield-Growth Option, Sahara Tax Gain-Growth and L&T Tax Advantage Fund-Regular Plan-Growth Option. These funds have to be avoided while making investment.

Illinois Teachers' Retirement System: Private Equity Performance

Illinois Teachers' Retirement System: Private Equity Performance

Analyzing the Effects of Leverage and Hedging on the Equity Valuation of Oil and Gas Producers in the Current Commodity-Price Cycle

Summary Although a severe drop in commodity prices was expected to adversely affect a financially leveraged producer, the variability of this effect across the universe of exploration and production (E&P) companies during the current downturn, which began in Autumn 2014, surprised industry participants. What factors caused the effect to be magnified for certain companies and muted for others? In examining 71 public E&P companies, we found a moderate correlation between a company's financial leverage and the loss of its equity value. Our study confirms that leveraged producers are exposed to the risk of debt-induced value loss in a downturn. Two other factors were studied for their influence on equity performance: the economics of a company's resource portfolio and the extent of its commodity-price hedging. To examine the effect of resource economics, we analyzed the finding-and-development (F&D) cost of producers and noticed statistically significant differences by hydrocarbon-producing regions. When controlled for the regional effect, the correlation between a company's financial leverage and the loss of its equity value substantially improved. The offsetting effect of a superior resource economics on the debt-induced value loss was evident. For example, the producers operating in the Permian Basin outperformed their similarly leveraged peers operating in the Williston Basin, a less-profitable region. A subset of financially leveraged companies significantly outperformed their similarly leveraged peers. These outperformers, termed here as “Leaders,” showcase a strong alignment between their financing and hedging activities. We observed evidence of the use of a continuous-hedging program through the price cycle by the Leaders. They responded soon to changes in their hedge positions, such as hedge roll-offs, rather than hedging when it is advantageous to do so. A key benefit of such a continuous-hedging program is the dollar-cost averaging of hedged prices, which appears to be an implicit goal of the Leaders. We contend that a leveraged producer must coordinate its hedging and financing policies to maintain an alignment between the hedged volume and the debt load. Endogeneity arises in the relationship between debt and hedges, with each influencing the other. An alignment can be achieved through the implementation of a continuous-hedging program factoring in annual production, operating cashflows, financial leverage, and hedged volumes. This paper takes the hedging debate for a leveraged producer beyond the realm of “to hedge or not to hedge” and addresses the question of “how much to hedge.”

The link between operational leanness and credit ratings

Although there is rich literature documenting the positive relationship between operational leanness and financial performance, recent research indicates that the effects of leanness may be more complex than is typically assumed. We explore the impact of two kinds of leanness, relative inventory leanness and relative PPE leanness, on credit ratings. We thus use an alternative lens to explore the financial implications of leanness. We analyze secondary U.S. data from 1985 to 2012, with 11,197 firm-year observations of manufacturing firms. Using panel data analysis, we show that inventory leanness is positively associated with credit ratings in a concave relationship. This is consistent with previous research that has looked at the impact of relative inventory leanness on equity performance. Conversely, we find that PPE leanness is negatively related with credit ratings in a concave relationship—in contrast to prior studies addressing the impact of PPE leanness on equity performance.

Are some areas more equal than others? Socioeconomic inequality in potentially avoidable emergency hospital admissions within English local authority areas.

ObjectivesReducing health inequalities is an explicit goal of England’s health system. Our aim was to compare the performance of English local administrative areas in reducing socioeconomic inequality in emergency hospital admissions for ambulatory care sensitive chronic conditions.MethodsWe used local authority area as a stable proxy for health and long-term care administrative geography between 2004/5 and 2011/12. We linked inpatient hospital activity, deprivation, primary care, and population data to small area neighbourhoods (typical population 1500) within administrative areas (typical population 250,000). We measured absolute inequality gradients nationally and within each administrative area using neighbourhood-level linear models of the relationship between national deprivation and age–sex-adjusted emergency admission rates. We assessed local equity performance by comparing local inequality against national inequality to identify areas significantly more or less equal than expected; evaluated stability over time; and identified where equity performance was steadily improving or worsening. We then examined associations between change in socioeconomic inequalities and change in within-area deprivation (gentrification). Finally, we used administrative area-level random and fixed effects models to examine the contribution of primary care to inequalities in admissions.ResultsData on 316 administrative areas were included in the analysis. Local inequalities were fairly stable between consecutive years, but 32 areas (10%) showed steadily improving or worsening equity. In the 21 improving areas, the gap between most and least deprived fell by 3.9 admissions per 1000 (six times the fall nationally) between 2004/5 and 2011/12, while in the 11 areas worsening, the gap widened by 2.4. There was no indication that measured improvements in local equity were an artefact of gentrification or that changes in primary care supply or quality contributed to changes in inequality.ConclusionsLocal equity performance in reducing inequality in emergency admissions varies both geographically and over time. Identifying this variation could provide insights into which local delivery strategies are most effective in reducing such inequalities.

Exploring the retention and success of students with disability in Australian higher education

ABSTRACTThe proportion of higher education students with disability is increasing. We know there is institutional variation in retention and performance of higher education students with disability, and there is a need to understand the reasons for this. This exploratory national study examines supports and adjustments provided by universities, including the role of disability practitioners, influence retention and performance of students with disability. The study uses a mixed-methods approach. National equity retention and performance data are analysed by higher education institution. Qualitative data on institutional policies and practices collected from a purposive sample of Australian higher education institutions are then analysed. Findings from the study include identification of factors linked to retention and performance of students with disability, including different types of disability.

Efficiency and Equity Performance of a Coordinated Ramp Metering Algorithm

Ramp metering (RM) has been widely applied due to its effectiveness in improving motorway traffic conditions by limiting inflow from on-ramps. A great deal of experimental and simulation-based studies have proven system-wide benefits of motorways from RM. Benefits attributed to RM in the literature include reducing travel times, increasing motorway throughputs and decreasing fuel consumption and emissions. However, RM benefits might be costing more some motorway users, e.g. some on-ramp users might be experiencing longer delay than others, which leads to an unfair allocation of RM benefits. This paper presents a coordinated ramp metering strategy, which is aimed at reducing the inequity among motorway users using different on-ramps and investigates trade-offs between efficiency and equity for the proposed strategy. Total travel time is used to measure the efficiency while Gini coefficient is used to measure equity. A combined index is proposed incorporating the two measures to serve as an objective function to solve the bi-objective control design problem. The performance of the proposed strategy is verified by comparing it to a well-established coordinated ramp metering strategy HERO using micro-simulationsoftware AIMSUN. Simulation results revealed that the equity of the motorway system can be improved significantly by using the proposed strategy without compromising much on the efficiency of the system.

How persistent is private equity performance? Evidence from deal-level data

The persistence of returns is a critical issue for investors in their choice of private equity managers. In this paper, we analyse buyout performance persistence in new ways, using a unique database containing cash flow data on 13,523 portfolio company investments by 865 buyout funds. We focus on unique realized deals and find that persistence of fund managers has substantially declined as the private equity sector has matured and become more competitive. Private equity has, therefore, largely conformed to the pattern found in most other asset classes in which past performance is a poor predictor of the future.

Health Equity Indicators for the English NHS: a longitudinal whole-population study at the small-area level

BackgroundInequalities in health-care access and outcomes raise concerns about quality of care and justice, and the NHS has a statutory duty to consider reducing them.ObjectivesThe objectives were to (1) develop indicators of socioeconomic inequality in health-care access and outcomes at different stages of the patient pathway; (2) develop methods for monitoring local NHS equity performance in tackling socioeconomic health-care inequalities; (3) track the evolution of socioeconomic health-care inequalities in the 2000s; and (4) develop ‘equity dashboards’ for communicating equity findings to decision-makers in a clear and concise format.DesignLongitudinal whole-population study at the small-area level.SettingEngland from 2001/2 to 2011/12.ParticipantsA total of 32,482 small-area neighbourhoods (lower-layer super output areas) of approximately 1500 people.Main outcome measuresSlope index of inequality gaps between the most and least deprived neighbourhoods in England, adjusted for need or risk, for (1) patients per family doctor, (2) primary care quality, (3) inpatient hospital waiting time, (4) emergency hospitalisation for chronic ambulatory care-sensitive conditions, (5) repeat emergency hospitalisation in the same year, (6) dying in hospital, (7) mortality amenable to health care and (8) overall mortality.Data sourcesPractice-level workforce data from the general practice census (indicator 1), practice-level Quality and Outcomes Framework data (indicator 2), inpatient hospital data from Hospital Episode Statistics (indicators 3–6) and mortality data from the Office for National Statistics (indicators 6–8).ResultsBetween 2004/5 and 2011/12, more deprived neighbourhoods gained larger absolute improvements on all indicators except waiting time, repeat hospitalisation and dying in hospital. In 2011/12, there was little measurable inequality in primary care supply and quality, but inequality was associated with 171,119 preventable hospitalisations and 41,123 deaths amenable to health care. In 2011/12, > 20% of Clinical Commissioning Groups performed statistically significantly better or worse than the England equity benchmark.LimitationsGeneral practitioner supply is a limited measure of primary care access, need in deprived neighbourhoods may be underestimated because of a lack of data on multimorbidity, and the quality and outcomes indicators capture only one aspect of primary care quality. Health-care outcomes are adjusted for age and sex but not for other risk factors that contribute to unequal health-care outcomes and may be outside the control of the NHS, so they overestimate the extent of inequality for which the NHS can reasonably be held responsible.ConclusionsNHS actions can have a measurable impact on socioeconomic inequality in both health-care access and outcomes. Reducing inequality in health-care outcomes is more challenging than reducing inequality of access to health care. Local health-care equity monitoring against a national benchmark can be performed using any administrative geography comprising ≥ 100,000 people.Future workExploration of quality improvement lessons from local areas performing well and badly on health-care equity, improved methods including better measures of need and risk and measures of health-care inequality over the life-course, and monitoring of other dimensions of equity. These indicators can also be used to evaluate the health-care equity impacts of interventions and make international health-care equity comparisons.FundingThe National Institute for Health Research Health Services and Delivery Research programme.

Better Measurements for CLO Equity Performance

This article discusses the structural and investment aspects of collateralized loan obligation (CLO) equity. The author reviews current and proposed measures of investment performance with example data of a large CLO transaction database. He finds that alternative measures provide better and extended information for CLO equity returns relative to the industry standard.

An Empirical Investigation of Brand Equity: A Cross-Country Validation Analysis

ABSTRACTThe purpose of this article is to propose and test a model in order to better understand brand equity. The goal of this research is to identify the drivers and determine how they influence brand equity performance in the researched industry in order to develop a more effective brand strategy. Quantitative data collected are used to test a model of brand value in the context of the food industry. The findings of this research provided evidence that the customer-based brand equity model can be applied to the food industry context and be used to guide marketing activities internationally. Brand awareness has a positive influence on brand associations and perceived quality. Brand associations have a positive influence on brand loyalty. Finally, brand loyalty, perceived quality, and brand associations all have a positive effect on brand equity. This study contributes to the scarce international brand equity literature by testing the proposed model using data from a sample of consumers in two European countries.

How the euro-area sovereign-debt crisis led to a collapse in bank equity prices

We quantify the linkages among banks’ equity performance and indicators of sovereign stress by using panel GMM to estimate a three-equation system that examines the impact of sovereign stress, as reflected in both sovereign spreads and sovereign ratings, on bank share prices. We use data for a panel of five euro-area stressed countries. Our findings indicate that a recursive relationship between sovereigns and banks operated during the euro-area crisis. Specifically, for the five crisis countries considered shocks to sovereign spreads fed-through to sovereign ratings, which affected commercial banks’ equity-prices. Our results also point to the importance of using levels of equity prices – rather than rates of return – in measuring banks’ performance. The use of levels allows us to derive the determinants of long-run equity prices.

Political Cognitive Biases Effects on Fund Managers' Performance

Under rational agent hypothesis, financial industry practitioners should not be affected by political discourse, and investors cannot realize abnormal returns on publicly available information. Rare events, however, may silence rationality and potentiate cognitive dissonance on a spectrum of agents. We assembled a comprehensive dataset of hedge fund performance and matched equity hedge fund managers’ political affiliation by their partisan contributions. We document higher returns of equity hedge funds managed by Democrats for 10 subsequent months — from December 2008 to September 2009. This result is unique and robust to placebo time windows and random partisan affiliation shuffling. We conjecture that the conjunction of the financial crisis, Obama’s election, and politically polarized interpretation of the US central bank policy during that period had an asymmetric impact on hedge fund managers’ perception. In other periods, when the political discourse did not involve central bank policy, there was no statistically significant difference between the performance of equity hedge fund managers depending on their political beliefs.

Effect of the board of directors and the audit committee on firm performance: a panel data analysis

This research examines the relationship between independent directors, the audit committee (AC), and firm performance, taking into account the impact of the chief executive officer’s powers and block shareholders. We use the maximum likelihood estimator, based on agency theory assumptions and cylindered panel data, to examine three models of firm performance. The results show that the independence of the board is reflected clearly by increased economic and equity performance of the firm. However, an AC that is fully independent or meets frequently is associated with lower firm performance. Unlike pension funds, institutional shareholders can be considered an effective control mechanism in the context of France. Our results development includes advanced explanations for market liquidity and shareholders’ portfolios. The study period ends before the European regulation on ACs came into effect in 2008. This allows for an appreciation of soft law in French corporate governance. It also lets us compare the data with the way firms operate their boards one decade later. The evidence provides useful guidelines on the supremacy of soft law in corporate governance and suggests that the composition and functioning of the board of directors should be moderated based on the firms’ context. The specificity of the cylindered panel data helps to better examine the impact of the board and AC’s independence and functioning in French corporate governance structure.

Family ownership, control and corporate capital structure

Purpose – The purpose of this paper is to explain how family firm ownership and management control affect corporate capital structure strategy after controlling for other significant variables. The authors argue that, although family ownership has a positive effect on a firm’s leverage, family control through the CEO position and equity performance moderate its impact. Design/methodology/approach – Using a stratified random sample of 200 US public firms in the S & P Small-Cap 600 index from 1999 to 2007, this study uses random effect panel regressions to test the impact of family ownership on market value and book value debt ratios and the moderating effects of family control and equity performance after controlling for firm, industry, and macroeconomic variables. Findings – The initial panel regression suggests that family ownership is not related to debt ratios. However, further examination with controls for family CEO and equity performance shows that family ownership is positively related to market and book value debt ratios, but its effect is offset by family control through the CEO position and equity performance. Research limitations/implications – This study’s methodology can be extended to examine how family firm governance factors affect other firm behaviors such as investment, risk management, and CEO compensation. Practical implications – Practitioners should consider family ownership and management control factors when establishing financing strategy. The Small Business Administration and other government agencies should make similar considerations when setting policies. Originality/value – This paper separates ownership and management control factors to explain why family firms use more or less leverage. This study, thus, reconciles the mixed results of prior studies, which do not differentiate between these two governance factors.

Estimating Skill in Private Equity Performance Using Market Data

Are private equity fund managers that earn persistently higher returns truly skilled, or are they just lucky? Using a novel approach that overcomes concerns about the integrity of both the data and the empirical methods that have been commonly used in prior studies of private equity persistence and skill, I find evidence of skill for Buyout and Mezzanine fund managers, however the evidence is mixed for Venture and Funds-of Funds. I then show that preferred transaction type is a channel through which skilled private equity fund managers differentiate themselves from unskilled ones.

Does risk explain persistence in private equity performance?

In this paper, we investigate whether fund-specific risk helps explain performance persistence in private equity funds, using detailed deal-level cash flow information at both the fund and deal levels. We further extend existing findings to international evidence on buyout and venture capital (VC) by testing the impact of various risk measures. We find that risk is an important driver of performance persistence and helps explain such persistence. We also find persistence in risk in private equity, in particular persistence in downside volatility for both buyout and VC funds. Finally, we document that fund performance is more strongly affected by fund managers able to minimize downside losses than selecting outperforming portfolio companies. This effect is strongest for buyout but, to a weaker extent, also holds for VC. Our results are further robust to controlling for legal factors at the country level.

Does Risk Explain Persistence in Private Equity Performance?

In this paper, we investigate whether fund-specific risk helps explain performance persistence in private equity funds, using detailed deal-level cash flow information at both the fund and deal levels. We further extend existing findings to international evidence on buyout and venture capital (VC) by testing the impact of various risk measures. We find that risk is an important driver of performance persistence and helps explain such persistence. We also find persistence in risk in private equity, in particular persistence in downside volatility for both buyout and VC funds. Finally, we document that fund performance is more strongly affected by fund managers able to minimize downside losses than selecting outperforming portfolio companies. This effect is strongest for buyout but, to a weaker extent, also holds for VC. Our results are further robust to controlling for legal factors at the country level.