Determinants of bankruptcies in leveraged buyouts

OBJECTIVES OF THE STUDY: In this thesis, I study the determinants of bankruptcies in leveraged buyouts. By constructing a large cross-sectional sample, my objective is to recognise factors that are associated with the probability that a leveraged buyout would go bankrupt. Factors of interest are deal source, financial strength, leverage, industry cyclicality, prevailing economic condition and credit market favourability and initial financial distress risk. Overall, the focus of this study is to explain determinants of failed LBOs rather than successful ones. Hence, the events of bankruptcy form the most prolific data points. All non-bankrupt buyouts, regardless of their eventual return-on-investment, are considered non-failed. DATA AND METHODOLOGY: My sample consists of 22,796 leveraged buyouts conducted in the U.S., Canada and Europe from 1982 to 2013. The data is derived from Capital IQ database which quite well represents the actual population of leveraged buyouts for the period. I determine bankruptcies by using multiple sources and methods, and conclude that the sample's bankruptcy rate (6.1%) is in line with previous literature. I assess the determinants of the binary event of bankruptcy with probit regressions and apply Heckman sample-selection model to correct misspecification errors for the estimates considering scarcely available financial statement information. The analysis of initial financial distress risk, measured as Altman Z, is performed with ordinary least squares regression. FINDINGS OF THE STUDY: The initial deal source significantly affects the outcome of the buyout. Buyouts of previously bankrupted, publicly listed and younger companies are associated with higher bankruptcy rates. Meanwhile secondary buyouts, privatizations and cross-border transactions are significantly less likely to go bankrupt. Also, management equity participation appears to reduce the risk of insolvency. Club deals on the other hand appear to have no significant effect on bankruptcies. The results also indicate that financial strength is an important factor in explaining buyout bankruptcies. Portfolio firms' greater ability to convert EBITDA to free cash flow after capital expenditures, lower indebtedness, higher interest coverage and higher profitability are associated with lower bankruptcy rates. Furthermore industry cyclicality, favourable economic conditions and flex credit market appear to be associated with higher probability of bankruptcy. Also, strength of creditor rights appears to have a very significant effect on the bankruptcy probability

Between rent-seekers and free-marketeers: The economic policy preferences and political influence of German and Swiss pharmaceutical multinationals and banks.

The purpose of this study is to analyse the economic policy preferences and political influence of a sample of German and Swiss pharmaceutical multinationals and banks. Put differently, the goal is to examine whether these MNEs have the will, and the political clout, to promote a liberal economic order or whether they seek to distort, or even suspend, the free formation of prices. In a sense, this study is thus a two-step procedure: first, it will analyse the formation of MNEs' preferences and then, second, it will examine how these preferences translate into political influence and policy outcomes. The focus of the analysis will be on the home country and the EU level of policy-making during the period from 1985 to 1995. Economic policy preferences will be explained as the result of the interaction of three factors: the extent and nature of MNEs' internationalisation process, their business focus and sectoral characteristics. With regard to policy outcomes and MNEs' influence over them, it will be argued that also three factors need to be considered: interests, institutions that link MNEs to the policy-making process and changing economic and political circumstances, which affect perceptions of self interest and institutions. Particular focus will be on the impact of circumstances on the preferences of the government, the degree of opposition from other domestic groups and the extent to which MNEs can use their internationalisation process for political leverage. Regarding MNEs' economic policy preferences, it will be pointed out that both the six pharmaceutical MNEs and the six banks were generally supportive of free markets, although there were also a few grey areas. When it came to their political influence, the picture was less clear cut since the extent to which MNEs could shape policy outcomes varied not only between pharmaceutical MNEs and banks, but also across policy issues within the two sectors. In general, the proposed explanatory framework could explain many of these complexities, although there were a few exceptions and qualifications