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Cross-Border LBOs, Human Capital, and Proximity: Value Addition through Monitoring in Private Equity Investments

Thomas Chemmanur, Tyler J. Hull and Karthik Krishnan

Journal of Financial and Quantitative Analysis, 2021, vol. 56, issue 3, 1023-1063

Abstract: We show that cross-border leveraged buyout investments involving U.S. rather than non-U.S. private equity (PE) investors are more likely to have a successful exit (initial public offering or acquisition). Exogenous increases in effective proximity following the signing of “open sky agreements” between the United States and target firms’ home countries increases both the propensity of U.S. PE firms to invest in these firms and the value addition by these investors. We show that such increases in value addition by U.S. PE investors following proximity increases are at least partially due to better monitoring, facilitated by the more efficient allocation of experienced U.S. PE managers to cross-border deals.

Date: 2021
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