Red and Blue: the relationship between the institutional context and the performance of leveraged buyout investments

Aviad Pe'Er and Oliver Gottschlag
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Aviad Pe'Er: Stern school of business - NYU - New York University [New York] - NYU - NYU System
Oliver Gottschlag: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper advances the debate concerning the relationship between politics and business conduct by investigating the influence of the institutional context on leveraged buyout investments. We propose that the formal and informal institution context in 'red' states (those dominated by the U.S. Republican Party) is more aligned with the principal strategies through which leveraged buyout investors create value than such a context is in 'blue' states (those dominated by the Democratic Party). Therefore, according to institutional theory, one would expect, ceteris paribus, a higher likelihood of buyout transactions in red states and vice versa. We analyze a sample of 10,746 U.S. buyout investments in 4,633 distinct target companies made by 2,396 different funds managed by 1,300 private equity firms from 1980 to 2003. The results indicate strong evidence of a positive association between a more aligned institutional context and both the volume of buyout activity and different measures of performance for these buyouts.

Keywords: institutional theory; private equity; political views (search for similar items in EconPapers)
Date: 2011-12
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Citations: View citations in EconPapers (15)

Published in Strategic Management Journal, 2011, 32 (12), pp.1356-1367. ⟨10.1002/smj.934⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00631579

DOI: 10.1002/smj.934

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