Home Bias in Leveraged Buyouts

Peter Cornelius, Karlijn Juttmann and Broes Langelaar

International Finance, 2009, vol. 12, issue 3, 321-349

Abstract: In this paper, we examine cross‐border investments in 2,260 portfolio companies by 102 buyout funds raised between 1995 and 2004. Using proprietary data compiled by AlpInvest Partners, we calculate the aggregate home bias of these funds as well as their home bias at the fund level. We find significant variation across funds. While UK‐based funds are on average least home‐biased, they show a high degree of intra‐European bias. In comparison, US funds are found to be least home‐biased in terms of inter‐regional acquisitions, with Europe being the most important destination for US buyout capital. Furthermore, we find that buyout funds tend to be less home‐biased than portfolio investors and, more specifically, mutual funds. This finding is consistent with the optimal ownership theory of the home bias, which predicts that foreign direct investment – as opposed to portfolio investment – represents the preferred choice of entry in countries where the quality of governance is perceived to be inferior, promoting insider ownership.

Date: 2009
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