The effects of private equity investors on the governance of firms

Companies that receive external equity typically experience a separation of ownership and control, where owners who are not involved in the company (principals) have to rely on the management team (agents) for achieving expected goals and target levels. Theoretical literature argues that when ownership and control are separated, principals develop governance structures to reduce agency costs and align agents’ incentives (Berle and Means, 1932; Jensen and Meckling, 1976; Grossman and Hart, 1986; Zingales, 1995). Likewise, optimal financial structure design by financial intermediaries can effectively help to mitigate agency problems by identifying self-enforcing equilibria (Diamond, 1984; Fama and Jensen, 1985; Stiglitz, 1985; Bhattacharya and Thakor, 1993; Barry, 1994). In general terms, governance and financial devices can be thought of as either internal control mechanisms (such as the board) or external control mechanisms (such as the market for corporate control). An increasingly important external control mechanism affecting the governance of young and fast-growing companies worldwide is the emergence of institutional and private equity investors, as equity owners. Institutional investors have the potential to influence management’s activities directly through their ownership, and indirectly by trading their shares (Gillan and Starks, 2003). In this respect private equity investors are differentiated from institutional ones in the longer-term view and in the significantly more hands-on approach that they pursue when investing in a portfolio company. As a result, companies backed by private equity investors represent a fruitful environment to investigate the use and efficiency of a multitude of control mechanisms. The surge over the last 30 years in investment activity by private equity investors at large has given rise to an increased specialization of this class of investors conditional on the risk return profiles associated with different investment and firm life cycle stages. For instance, business angels supporting the archetypical ‘paper company’ start-up face a risk exposure that in terms of both magnitude and characteristics is significantly different from that incurred by a private equity investor acquiring control of a mature company. Yet, investors in this market share common traits such as a value maximization approach, risk‒return informed decisions, and a deep knowledge of governance mechanisms. As such their influence on portfolio company governance mechanisms is largely similar in terms of depth and breadth. In this chapter we aim at presenting an up-to-date review of the main theoretical contributions and empirical results in this active and growing field of research

Knowledge Transfer and Accomodation Effects in Multinational Corporations: Evidence from European Subsidiaries

Foreign subsidiaries in multinational corporations (MNCs) possess knowledge that has different sources (e.g., the firm itself or various sources in the environment). How such sources influence knowledge transfer is not well understood. Drawing on the “accommodation effect” from cognitive psychology, the authors argue that accumulation of externally sourced knowledge in a subsidiary may reduce the value of transferring that subsidiary’s knowledge to other parts of the MNC. The authors develop a parsimonious model of intrafirm knowledge transfer and test its predictions against a unique data set on subsidiary knowledge development that includes the sources of subsidiary knowledge and the extent of knowledge transfer to other MNC units. The authors show that a high level of externally sourced knowledge in a subsidiary is associated with a high level of knowledge transfer from that subsidiary only if a certain tipping point of internally sourced knowledge has been surpassed. This suggests that subsidiary knowledge stocks that are balanced in terms of their origins tend to be more valuable, congruous, and fungible, and therefore more likely to be transferred to other MNC units

Religious transformations in the Middle Ages: towards a new archaeological agenda

The study of religious change in Europe between the collapse of the Roman Empire and the Reformation forms one of the cornerstones of medieval archaeology but has been riven by period, denominational and geographical divisions. This paper lays the groundwork for a fundamental rethink of archaeological approaches to medieval religions, by adopting a holistic framework that places Christian, pagan, Islamic and Jewish case studies of religious transformation in a long-term, comparative perspective. Focused around the analytical themes of ‘hybridity and resilience’ and ‘tempo and trajectories’, our approach shifts attention away from the singularities of national narratives of religious conversion towards a deeper understanding of how religious beliefs, practices and identity were renegotiated by medieval people in their daily lives

Changing perspectives on the internationalization of R&D and innovation by multinational enterprises: a review of the literature

Internationalization of R&D and innovation by Multinational Enterprises (MNEs) has undergone a gradual and comprehensive change in perspective over the past 50 years. From sporadic works in the late 1950s and in the 1960s, it became a systematically analysed topic in the 1970s, starting with pioneering reports and “foundation texts”. Our review unfolds the theoretical and empirical evolution of the literature from dyadic interpretations of centralization versus decentralization of R&D by MNEs to more comprehensive frameworks, wherein established MNEs from Advanced Economies still play a pivotal role, but new players and places also emerge in the global generation and diffusion of knowledge. Hence views of R&D internationalization increasingly rely on concepts, ideas and methods from IB and other related disciplines such as industrial organization, international economics and economic geography. Two main findings are highlighted. First, scholarly research pays an increasing attention to the network-like characteristics of international R&D activities. Second, different streams of literature have emphasized the role of location- specific factors in R&D internationalization. The increasing emphasis on these aspects has created new research opportunities in some key areas, including inter alia: cross-border knowledge sourcing strategies, changes in the geography of R&D and innovation, and the international fragmentation of production and R&D activities