Structure and determinants of financial covenants in leveraged buyouts - evidence from an economy with strong creditor rights

We apply control rights theory to explain the structure and determinants of financial covenants in private equity backed leveraged buyouts. We analyze 130 German transactions from 2000 to 2008, covering about 40 percent of the LBO market during this period. We consider Germany to be a superior institutional context as creditors have substantial rights in case of borrower default and contracts are negotiated more rigorously. Regarding structure we find that the financial covenant structure, in terms of number and types, is standardized and appears to be much more conservative than in the United States. Additionally, our results suggest that financial covenants are designed in a hierarchical manner, with the Debt to EBITDA covenant being the first to breach in early years. Regarding determinants we are the first, to our knowledge, to apply a direct measure of financial covenant restrictiveness, which is the real negotiated item between lead arrangers and sponsors. Our results show that financial covenant restrictiveness is significantly negatively related to the size of the private equity group, which serves as a proxy for reputation. Further we show that target-related factors, like growth and profitability, have a strong impact on financial covenant restrictiveness. With regard to transaction-based factors, increasing financial risk leads to more restrictive financial covenants. --financial covenants,leveraged buyouts,financing structure,control rights

Private equity minority investments in large family firms: what influences the attitude of family firm owners?

This paper extends research in the field of private equity investments in family firms. It contributes to the literature by fundamentally analyzing the decision criteria of family firm owners for using minority investments of private equity investors. This type of financing might be of great interest to family firms, as the family firm owner is able to secure majority ownership and control over the family business. Likewise, minority investments might be attractive for private equity investors, as they are mostly not leveraged and therefore independent from capital market turbulences. Using data from 21 case studies, we identify challenges induced by the family or the business that lead to the phenomenon of private equity minority investments in family firms. We find that perceived benefits and drawbacks of private equity investments are influenced by business and family characteristics. Based on pecking-order theory, resource-based view and the strategy paradigm, propositions as well as a conceptual framework are developed. --private equity,minority investments,family firms,financing,managerial resources

Retinal vascular occlusion after vitrectomy with retrobulbar anesthesia-observational case series and survey of literature

Background: Severe postoperative loss of vision has been occasionally reported as a rare complication of retrobulbar anesthesia, and several possible causes have been proposed in the literature. In this work, our own and other investigators' experiences with these complications are surveyed with a view to identifying its pathophysiology. Patients: This observational case series refers to six patients who presented during a 3-month period with occlusion of either the central artery itself (n = 3) or a branch thereof (n = 3) 2-14days after uneventful vitreoretinal surgery following retrobulbar anesthesia with a commercial preparation of mepivacaine (1% Scandicain®, Astra Chemicals, Sweden) containing methyl- and propyl parahydroxybenzoate as preservatives. Results: Three of the patients carried risk factors, which were medically controlled. In three individuals, vasoocclusion was observed after a second vitreoretinal intervention, which was performed 3-12months after uneventful primary surgery. Good visual recovery was observed in only one instance. Conclusions: In patients who were anesthetized with preservative-free mepivacaine, no vasoocclusion occurred. In individuals who were anesthetized with mepivacaine containing the preservatives methyl- and propyl parahydroxybenzoate, a tenfold increase in the incidence of eyes requiring re-operation was documented, with a 2- to 14-day lapse in the onset of vasoocclusion. These findings reveal a possible implication of preservatives contained in the local anesthetic solution for the vasoocclusive events. Due to this potential hazard, the use of preservative-free preparations of local anesthesia in ocular surgery is emphasized in order to prevent this sight-threatening complicatio

The roots of regional trust

Social trust is increasingly seen as an important determinant of economic growth and social prosperity in regions and nations. Even in a comparatively homogeneous area such as Europe, there are stark sub-national differences in levels of generalized trust. It is thus of crucial importance to identify the driving forces of regional trust and analyze the dynamics of its formation. The present paper considers these issues based on three waves of the European Values Study. Evidence is provided to demonstrate that values of regional trust remain substantially stable over an approx. 20-year period and are modified only through spatially correlated random noise processes. This finding is consistent with additional analyses identifying slow-moving factors that are responsible for the spatial distribution of trust scores and are buried deep in the cultural background of a society. Hence, in spite of its economic significance, social trust does not appear to be amenable to political intervention in the short to medium term

Multivariate Stochastic Volatility via Wishart Processes - A Continuation

This paper picks up on a model developed by Philipov and Glickman (2006) for modeling multivariate stochastic volatility via Wishart processes. MCMC simulation from the posterior distribution is employed to fit the model. However, erroneous mathematical transformations in the full conditionals cause false implementation of the approach. We adjust the model, upgrade the analysis and investigate the statistical properties of the estimators using an extensive Monte Carlo study. Employing a Gibbs sampler in combination with a Metropolis Hastings algorithm inference for the time-dependent covariance matrix is feasible with appropriate statistical properties

Structure and determinants of financial covenants in leveraged buyouts - evidence from an economy with strong creditor rights

We apply control rights theory to explain the structure and determinants of financial covenants in private equity backed leveraged buyouts. We analyze 130 German transactions from 2000 to 2008, covering about 40 percent of the LBO market during this period. We consider Germany to be a superior institutional context as creditors have substantial rights in case of borrower default and contracts are negotiated more rigorously. Regarding structure we find that the financial covenant structure, in terms of number and types, is standardized and appears to be much more conservative than in the United States. Additionally, our results suggest that financial covenants are designed in a hierarchical manner, with the Debt to EBITDA covenant being the first to breach in early years. Regarding determinants we are the first, to our knowledge, to apply a direct measure of financial covenant restrictiveness, which is the real negotiated item between lead arrangers and sponsors. Our results show that financial covenant restrictiveness is significantly negatively related to the size of the private equity group, which serves as a proxy for reputation. Further we show that target-related factors, like growth and profitability, have a strong impact on financial covenant restrictiveness. With regard to transaction-based factors, increasing financial risk leads to more restrictive financial covenants

The multiple facets of regional innovation

Measuring innovation activities involves critical decisions in selecting appropriate indicators and levels of observation. The present article contributes to the literature on this subject by addressing innovation measurement on the regional level. The dimensionality of regional innovation is examined by applying a principal component analysis on seven innovation output indicators in European regions from the Community Innovation Survey and two traditional indicators, i.e. patent applications and R&D expenses. The analysis reveals that regional innovation indeed needs to be regarded as a multidimensional concept involving technological, commercial and service innovation. These distinct innovation activities exhibit clear regional patterns with both technological and service innovation concentrated in highly developed territories and urban areas displaying particularly strong innovation performance in services. In addition, commercially successful innovation appears clustered in backward regions and may thus be seen as imitation efforts and technology transfers from areas at the innovation frontier. Overall, the elaborated findings suggest that the selection of innovation indicators in empirical analyses demands appropriate motivation and theoretical guidance

Do methodical traps lead to wrong development strategies for welfare: A multilevel approach considering heterogeneity across industrialized and developing countries

Subjective well-being (SWB) is becoming increasingly important as welfare concept in both scientific research and politics, as it comprises additional welfare aspects compared to the GDP per capita. Consequently, it becomes important to explicitly identify its driving forces and clarify still ambivalent findings of the literature. For this purpose, with a multilevel model we investigate the extent to which individual-level and national variables together influence subjective well-being. Moreover, we expect that life satisfaction of people in developing countries is determined differently than life satisfaction of people in industrialized countries. The database used includes both individual and national variables and is split into two subsamples of 40 industrialized countries and 41 developing countries. The results show that the national environment is highly important for a person's SWB. Thus, neglecting this national level would generate biased estimates. Moreover, the split into industrialized and developing countries shows that statistically significant and substantial differences in the effects on life satisfaction exist. Important differences are found for example regarding the income variables. We identify a saturation effect of income on the individual level, whose level is however different depending on the development status of the countries. Moreover, on the aggregated level a significant impact of GDP per capita is found for the developing but not for the industrialized countries. Thus, this study indicates that multilevel modelling approaches are necessary to obtain robust results and that the impact of macroeconomic variables diverges in dependence of the country's development status

Measuring regional innovation in one dimension: More lost than gained?

In both academic literature and political discussions the concept of innovation is recognized as an essential ingredient in economic development and competitiveness for firms, regions, and nations. Innovation also ranks at the top of policy agendas in the field of regional policy. Therefore, the attractiveness of an appropriate innovation index for ranking regions and further developing them along a more or less objective measurement scale is evident. However, whether such rankings help convey a better understanding of innovation and its drivers, or whether they are merely a special type of 'beauty contest' with little substance is the focus of our analyses. To deny the latter, the innovation output indicators used for the composite index have to be appropriate representatives of the underlying innovation concept and each indicator has to be driven by the same impact factors. If this is not the case, interpretation of the index inevitably gives rise to partly inappropriate policy recommendations. In order to demonstrate this claim we elaborate a set of innovation indicators at the regional level based on the theoretical concept of the OECD document 'The Measurement of Scientific and Technological Activities, Proposed Guidelines for Collecting and Interpreting Technological Innovation Data' known as the 'Oslo Manual' (OECD, 2005) and their empirical implementation in the Community Innovation Survey. Additionally, innovation drivers well established in the literature are collected to estimate their impact on each innovation indicator as well as on the composite index derived from the innovation indicators. The question whether 2 innovation should be measured as a multidimensional concept and investigated using various indicators or whether simplifying innovation to a one-dimensional concept is appropriate is clearly answered in favour of the multidimensional approach. Surprisingly, this is not due to the multidimensionality of the indicators themselves (all statistical measures indicate that the considered variables are sufficiently represented by one component), but to our first evidence that the innovation output indicators are driven by various impact factors and can therefore be influenced by various political strategies. According to these findings any type of innovation ranking is of very limited use