Private Equity Research Articles

Caregiver-Reported Quality in Hospices Owned by Private Equity Firms and Publicly Traded Companies

This study compares differences in caregiver-reported hospice quality across categories of ownership, including for-profit private equity firm (PEF)/publicly traded company (PTC)–owned and non-PEF/PTC–owned hospices as well as not-for-profit–owned hospices.

Financial Statement Forecasting and Financing

Using a “plug” figure or “slack term” within a pro forma analysis is the standard method to allow a forecasted balance sheet to have assets equal to liabilities and equity. Seemingly, different types of plug values are demonstrated to be mathematically linked to each other. Further, by exploring cash as a plug figure, a solution emerges for a “target revenue growth rate” in which cash is not depleted. If a private equity venture can generate revenue growth above the target revenue growth rate, cash will accumulate and improve the return on the private equity investment.

Macroeconomic Conditions and Private Equity in Morocco: A Bounds-Testing Cointegration Approach

Private equity plays a pivotal role in fostering entrepreneurship, innovation, and job creation across many economies. In Morocco, the private equity sector is in its developmental stage and faces significant macroeconomic challenges that hinder its growth. This study seeks to address the gap in the literature by examining how key macroeconomic factors—including GDP growth, exchange rates, government spending, inflation, gross domestic savings, interest rates, and industrial production—affect private equity fundraising in Morocco between 1990 and 2019. Employing the autoregressive distributed lag (ARDL) model, we investigate both short- and long-term relationships between these macroeconomic variables and private equity fundraising. The results reveal that GDP growth and interest rates significantly influence private equity fundraising in both the short and long run, while inflation and government spending have a more pronounced long-term effect. These findings highlight the need for policies focused on stabilizing macroeconomic conditions to attract private equity investments. Policymakers should prioritize fostering a stable economic environment characterized by sustainable growth, low inflation, and moderate interest rates to create a favorable investment climate.

Abstract 4138609: Patient Care Experience Worsens After Private Equity Acquisition of US Hospitals: Implications for Cardiovascular Outcomes

Background: Patient care experience is strongly associated with outcomes among individuals with cardiovascular disease. There is growing concern that the recent and precipitous rise in private equity acquisitions of US hospitals may worsen patient-centered care, and ultimately, cardiovascular outcomes. However, little is known about how private equity acquisitions of hospitals impact patient care experience. Research Question: To evaluate whether the acquisition of US hospitals by private equity firms was associated with changes in measures of patient-reported experience compared with matched control hospitals (not acquired by private equity) between 2007-2019. Methods: This cohort study identified 74 US acute care hospitals newly acquired by private equity firms and 298 matched control (non-acquired) hospitals from 2007 to 2019. CMS Hospital Compare files were used to obtain patient experience measure scores for each hospital from Hospital Consumer Assessment of Healthcare Providers and Systems (HCAPHS) survey results. A quasi-experimental difference-in-differences design was used to evaluate changes in patient experience measures at private-equity acquired hospitals compared with matched control hospitals 3 years before vs 3 years after acquisition. Results: The percentage of patients rating hospitals as a 9 or 10 out of 10 at private equity acquired hospitals and control hospitals is shown in the Figure. There was a differential decrease in patient ratings (of 9 or 10 out of 10) at hospitals acquired by private equity firms compared with control hospitals (-2.4 percentage points [95% CI -3.9, -0.9]). A similar trend was seen in the percentage of patients that would definitely recommend the hospital, with a differential decrease at private equity-acquired hospitals relative to control hospitals (-2.2 percentage points [95% CI -3.6, -0.7]). For both measures, the relative decrease in patient care experience at private equity hospitals compared with control hospitals steadily grew with each subsequent year after acquisition. Conclusion: In this national study, patient-reported care experience worsened after private equity acquisition of US hospitals, which has important implications for cardiovascular care and outcomes.

EFFECT OF PUBLIC PRIVATE PARTNERSHIP FINANCING STRUCTURE ON COMPLETION OF GEOTHERMAL ENERGY DEVELOPMENT PROJECTS IN KENYA

Objective: To determine the effect of Public Private Partnership (PPP) financing structure on the completion of geothermal energy development projects in Kenya. Theoretical Framework: The study used agency and public choice theories to analyze the dynamics between PPP financing structure and completion of geothermal energy development projects. Methodology: A cross-sectional census survey in Kenya surveyed 48 geothermal energy development projects, collecting quantitative data through structured questionnaires and qualitative insights from industry regulators, financiers, and practitioners. A combination of descriptive, correlation, and linear regression statistical models were applied. Multiple diagnostics tests and data triangulation were performed. Results and Discussion: The study results provide strong statistical evidence depicting a positive relationship between PPP financing structure and the completion of geothermal energy development projects in Kenya. The findings suggest that as the level of PPP involvement increases, so does the likelihood of faster project completion. The study also reveals that a balanced PPP financing structure has a substantial effect on the completion of geothermal energy development projects. The analysis demonstrates that a hybrid PPP financing structure comprising recommended proportions of private and government equity, commercial and concessional loans, hybrid finance, and grants significantly affects project completion outcomes. Research Implications: The study emphasizes the significance of a structured PPP financing model, comprising private and government equity, concessional and commercial loans, hybrid finance, and mixed grants, in mitigating inherent PPP risks for enhanced project completion outcomes. In addition, effective government support measures and robust delivery capability of developers jointly influence the two variables in a significant manner. Originality/Value: This study uniquely analyzes the influence of PPP financing structure on the completion of geothermal energy development projects in Kenya, integrating quantitative and qualitative data for a comprehensive perspective, thus offering essential insights for stakeholders.

Private Equity Funds Acquiring Venture-Capital-Backed Companies: Shifting from Opportunism to Industry Specialization?

Private Equity Funds Acquiring Venture-Capital-Backed Companies: Shifting from Opportunism to Industry Specialization?

Change point detection in high dimensional covariance matrix using Pillai’s statistics

AbstractThis research proposes a method to test and estimate change points in the covariance structure of high-dimensional multivariate series data. Our method uses the trace of the beta matrix, known as Pillai’s statistics, to test the change in covariance matrix at each time point. We study the asymptotic normality of Pillai’s statistics for testing the equality of two covariance matrices when both sample size and dimension increase at the same rate. We test the existence of a single change point in a given time period using Cauchy combination test, the test using an weighted sum of Cauchy transformed p-values, and estimate the change point as the point whose statistic is the greatest. To test and estimate multiple change points, we use the idea of the wild binary segmentation and repeatedly apply the procedure for a single change point to each segmented period until no significant change point exists. We numerically provide the size and power of our method. We finally apply our procedure to finding abnormal behavior in the investment of a private equity fund.

Private equity involvement in primary care: the case of Ireland.

Private equity (PE) firms play an increasingly important role in healthcare. Yet, existing research remains uneven, mostly focused on the United States and on certain sectors such as nursing homes. Some geographical areas and health specialties remain under-explored. This brief paper outlines a research agenda focusing on three key issues: (1) PE's significance and (2) business strategies in healthcare, and (3) PE's impacts on health and healthcare. The paper uses primary care in Ireland as an example. The proposed research agenda should improve our understanding of the nature of PE in healthcare and serve as a basis for policy-makers to explore appropriate and effective regulation of PE to reduce its negative impacts if and when they exist.

Do Public Financial Statements Influence Private Equity and Venture Capital Financing?

ABSTRACT We study whether the availability of public audited financial statements influences the probability of private firms receiving private firm equity financing. Using a setting in the EU with plausibly exogenous variability in the extent to which private firms issue public financial reports, we find that private firms subject to public reporting requirements have a higher probability of obtaining private equity (PE) financing. In addition, we show that the increase in PE financing occurs in industries in which PE funds have prior experience. Last, we show that our findings also extend to other forms of private firm financing such as private firm acquisitions and venture capital. Our evidence highlights the importance of public financial statements in the decision-making of PE investors, an important and understudied segment of the private firm financing market. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M41; M2; G24; G34.

Entrepreneurial finance and sustainability: Do institutional investors impact the ESG performance of SMEs?

Institutional investors improve the environmental, social, and governance (ESG) performance of small- and medium-sized enterprises (SMEs). Our difference-in-differences framework shows that the backing from private equity and venture capital funds leads to an increase in SMEs’ externally validated ESG scores compared to their matched non-investor-backed peers. Consistent with “ESG-as-insurance” theory, the ESG performance of SMEs with a higher probability of failure is more likely to benefit from the backing of institutional investors. This positive effect is heterogeneous; while SMEs with high ex-ante ESG performance further improve their ESG performance following institutional investor backing, SMEs with low ex-ante ESG performance are unlikely to implement any improvements. Entrepreneurial finance seems to help sustainable entrepreneurs transform into “sustainability champions,” while neglecting the betterment of non-sustainable SMEs.

Private Equity and the Corruption of Medicine

Private Equity and the Corruption of Medicine

Plundered or profitably pumped-up? The effects of private equity takeover

We study the effects on firms that are acquired by private equity firms in a leveraged buyout, using detailed Swedish registry data covering 1998-2022. Acquired firms see a large increase in their debt and debt related variables, but no significant change in productivity. This suggests that, on average, private equity firms target profitable firms and increase their size through the addition of leverage.

Systematic Insights into Private Equity Investing

Systematic Insights into Private Equity Investing

Urban Agriculture and Food Security in Development Planning

With the world population anticipated to reach over nine billion in 2050, and the majority of whom will live in cities, feeding a predominantly urban population will pose additional challenges to a predominantly rural-based agrifood system. Further, with the focus of economic activity being centered in cities, a development question is whether agriculture in cities should be an integral part of national planning. This is particularly when food insecurity is expected to challenge the poor in cities much more than in the countryside. Urban and peri-urban agriculture has been practiced in many parts of the world through activities ranging from community gardens to commercial farms of varying sizes. A major change, accelerated by supply chain disruptions and the COVID-19 pandemic in the early 2020s, has been the rapid development of technologies (digital, physical, biotechnological) that increases food production capabilities in urban areas and provide economic opportunity for entrepreneurship. Additionally, sizable investments from private equity have seen sophisticated food production facilities, such as indoor vertical vegetable and fish farms and precision fermentation factories, produce novel food such as alternative proteins in city spaces. Apart from the economic and food security benefits arising from urban agriculture, environmental and social benefits have also been demonstrated in cities that have adopted a clear mandate to become “green” and reduce their carbon footprints. This paper provides a background on urban farming, its justification as a worthwhile activity, and the rationale for explicitly including urban agriculture in national planning.

Private equity buyouts & firm exporting in crisis periods: Exploring a new channel

This paper examines whether private equity (PE)-backed companies are better able to remain active on export markets compared to similar non-PE firms, when hit by a negative shock. We look at two such recent shocks, namely the global financial crisis (GFC) and COVID-19 pandemic. We construct two matched samples, one for each crisis period, to assess the resilience of exporting under PE ownership in recessionary periods. We then explore how improvements in working capital management allow PE-backed firms to engage in international activities and maintain their export relationships relative to similar, non-PE-backed firms. Our results show that the export activities of PE-backed firms are significantly more resilient to the effects of the GFC but less pronounced following COVID-19. PE investment enhances working capital management, which in turn improves the persistence in export markets at the onset of the crises.

Arbitral Settlement of Joint Infringement by Private Equity Funds

Based on the confidentiality and efficiency of arbitration, the dispute resolution method is often agreed as arbitration in the contracts involving private equity funds. The investment process of private equity funds often involves multi-layer nesting to avoid regulation and infringement of investors' rights and interests. Such infringement cases involve joint infringement by a majority of people, and it is difficult for investors to claim their rights through infringement lawsuits based on the exclusionary effect of a valid arbitration agreement on jurisdiction in the event that investors have signed a valid arbitration agreement. Due to the relativity of the arbitration agreement, the arbitral tribunal cannot break through the validity of the arbitration agreement to pursue the liability of other joint infringers when accepting the relevant case, and cannot resolve the dispute at once. If the validity of the arbitration agreement can be extended to other joint tortfeasors in the private equity fund, it will not only facilitate the investors to claim their rights and interests, but also improve the efficiency of dispute resolution.

Machine learning private equity returns

In this paper, we use two machine learning techniques to learn the aggregated return time series of complete private capital fund segments. First, we propose Stochastic Discount Factor (SDF) model combination to determine the public factor exposure of private equity. Here, we describe our theoretical motivation to favor model combination over model selection. This entails that we apply simple coefficient averaging to obtain multivariate SDF models that mimic the factor exposure of all major private capital fund types. As a second step, we suggest componentwise L2 boosting to estimate the error-term time series associated with our factor models. The simple addition of the public factor model returns and the error terms then yields the total return time series. These return time series can be applied for proper integrated public and private risk management or benchmarking.

The Coming of Age of Venture Capital Investing in the New Fields of the Emerging MOGI Sectors: A Snapshot for the Future: Part 2

Venture Capital (VC) has become a chosen tool of investment in the areas of business where there seems to be potent promise but yet immature in terms of market, customer acceptance and political dynamics. Such uncertainties make bankers both nervous and hesitant,and where the risk takers like venture capitals thrive. In the first part of the article we discussed about how mineral,oil& gas and energy companies are becoming both investors of VC and attractive destinations for investment by other VCs. The VCs are mostly either Private Equities (PE) or the venture funds of established companies. They mostly invest in emerging technologies and risky, yet promising, opportunities. In this part we discuss how the risks are assessed and mitigated, what takes one to be the VC fund manager and the current dynamics in the VC investments. Risky as they are, VC investors always look for reasonable profit to exit investments, for the next set of investors to pursue the opportunities with the omnipresent risks.

Industrial Policy Environment and Private Equity Placement: Evidence from Chinese Real Estate Firms

Over the past four decades, China’s real estate industry has experienced rapid growth, accompanied by frequent regulatory interventions. These shifts present an ideal context for examining the characteristics of private equity placements (PEPs) under varying industrial policy environments. This study examines the PEPs of Chinese real estate firms from 2006 to 2023, calculating the cumulative abnormal returns during announcement periods and the transaction discounts across various regulatory phases. The analysis reveals significant positive announcement effects, even in times of policy tightening, with these effects becoming more pronounced during periods of policy relaxation. However, regression analyses suggest that the policy environment does not significantly impact the announcement effects. Contrary to traditional views, PEP discounts tend to be shallower during policy tightening and deeper during policy loosening. Further analysis indicates that investors are willing to accept smaller discounts in exchange for more valuable investment opportunities.

Does the disclosure of ESG information by private equity firms impact the success of their fundraising efforts?

This study examines the impact of private equity fund managers' (GPs') ESG disclosure on fundraising. To this end, a sample of global private equity and venture capital funds that completed fundraising between 2020 and 2022 is employed. Our findings indicate that an increase in ESG disclosure by GPs is associated with an increase in fundraising. This indicates that GPs' ESG disclosure diminishes information asymmetry and has a favorable impact on fundraising. Conversely, the level of ESG disclosure among limited partners (LPs) has no significant impact on the relationship between GPs' ESG disclosure level and fundraising. The findings of this study have significant implications for private equity stakeholders, including GPs, given the current context of declining investment demand due to rising interest rates, recessionary concerns, poor performance and tighter regulations on private equity management. In this environment, ESG disclosure is becoming increasingly challenging for private equity firms to utilize as a fundraising strategy.