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Does corporate governance matter? A comparison of public-to-private transactions pre and post the economic crisis.

One of the important strategic decisions a firm can make, one with far-reaching consequences, is to change its ownership from being traded on public equity markets to being privately held. A typical public-to-private or PTP transaction involves a small number of investors who purchase stock of a public corporation through either a tender offer or a merger. A tender offer involves the acquisition group's offer to purchase shares directly from the public, while in a merger, a new private company is formed, the old public company is merged into it, and existing shareholders not involved in the transaction receive cash for their shares. Following either the tender offer or merger, the governance structure of the company is often transformed from one that separates management and ownership to a configuration in which management and ownership interests are substantially less differentiated (Cummings et al., 2007; Vogi, 2006), as it is not unusual for the new private equity owners to take an active role in the management of the business. Valuation of the firm becomes difficult, as a public market for shares no longer exists. The lack of access to equity markets results in decreased liquidity, and financing for future projects or expansion must generally come through borrowing. Given the weight of this decision, a stream of research has developed and identifies several factors that might affect what is known as "going private" (e.g., Gleason et al., 2007; Valenti and Schneider, 2012).

An upsurge of going private activity first occurred in the 1980s and was characterized by the use of leveraged buy-outs (LBOs). Many of these transactions were management-led buyouts, dominated by corporate insiders, either officers, directors, or both (Jones and Hunt, 1991). The buyout process resulted in a highly leveraged capital structure of the newly private firm (Blair, 1993; Bruner and Paine, 1988), with the transaction largely financed by junk bonds. A second wave occurred in the early to mid 2000s, fueled by readily available credit and a backlash against increased government regulation faced by public companies (Block, 2004; Engel et al., 2007). The role of managers and other insiders was not as prominent as it had been in the 1980s, although they were often incentivized to support the deals and were involved in the process (Nielsen, 2008). Instead, going private activity in the 2000s was largely dominated by the role of private equity companies and their private equity funds in encouraging and facilitating the transactions (Folkman et al., 2007). The new equity was then acquired as an investment by their own and possibly other private equity funds (Kelly, 2007; Subiotto, 2006).

With the credit crisis that began in the second half of 2007, private equity firms halted $ 114 billion in buyouts (Thorton, 2008), and global private equity buyouts in the first half of 2008 totaled 974 deals or $124.7 billion, down 76% from the prior year (Holman, 2008). These conditions persisted through the first half of 2012 (Doney and Reston, 2012), causing lenders to become overly cautious about financing proposed opportunities, even where firms had records of previous successes (Wright et al., 2010). In addition, despite variance in the degree to which private equity firms rely upon debt financing of their portfolio firms (Hoskisson et al., 2013; Wright et al., 2013), a shortage of debt made it difficult for them in general to refinance or sell their current companies (Thorton, 2008) and hurt their ability to take other firms private.

Previous studies, which focused on the two previous periods of PTP activity, found that the decision to go private was often related to the firm's financial condition. These studies are generally in agreement that a firm's market value has a negative relationship with its decision to convert to privately held status (Andres et al., 2007; Bharath and Dittmar, 2010; Rao et al., 1995; Renneboog and Simons, 2005; Weir et al., 2005a; 2005b), suggesting that the lower the firm's value, the more likely that it will be taken private. In addition, the potential for improved financial performance for equity investors of the newly private firm through its greater leverage, longer-term timeframe (Kahan and Rock, 2007) and the possible value-adding expertise of its private equity owners (Cressy et al., 2007; Schneider and Valenti, 2011) often prompted the PTP process (Braun and Latham, 2007).

Further, as is evidenced by the cyclical waves of PTP activity, macro-level forces were key influences in the decision, most notably, economic and regulatory forces. Because many PTP firms tend to use a high degree of leverage to finance their transactions, the availability of credit affected a company's ability to go private, making credit market conditions a pertinent factor (Bharath and Dittmar, 2010). Regulation both in the U.S. and Europe aimed at improving governance oversight and making executive compensation more transparent has proved burdensome and costly. Since these regulations affect publicly held corporations to a much greater extent than private ones, they became a significant influence in the recent era of PTP transactions (Block, 2004; Engel et al., 2007).

Yet, despite the enormous impact the credit crisis had on the number of firms going private, some firms did indeed go private post the crisis, as is to be expected given the varying strategies of private-equity firm deal makers (Bacon et al., 2013). As the external circumstances favorable to these transactions have disappeared, internal conditions are more likely to be important in the decision to go private. Accordingly, it is hypothesized that specific corporate governance structures of companies that went private before 2008 will differ from those that went private thereafter, from 2008 to 2011, during the height of the great recession. These time periods are relevant because macro-economic conditions varied greatly from 2003 through 2007 than those in the later time phase, as evidenced by the data contained in Table 1.

This paper starts with a review of the current literature identifying organizational and institutional forces affecting the decision to go private. Several hypotheses are then developed and tested regarding the governance variables that might differ between corporations that went private before 2008 and those that engaged in the transition between 2008 and 2011. A discussion and suggestions for a future research agenda conclude the paper. As managers and researchers move forward and consider the antecedents as well as the broader consequences of private status (e.g., Bacon etal., 2013; Jones and Hunt, 1991; Nielsen, 2008; Schneider and Valenti, 2010), this paper provides greater understanding of the PTP decision and the context in which it is made. It also meets the call for research on the phenomenon post 2008, given changes that occurred in credit markets and affected debt financing (Wright et al., 2013).

LITERATURE REVIEW: ANTECEDENTS OF THE DECISION TO GO PRIVATE

Agency theory has provided the intellectual basis of the going private decision (Froud and Williams, 2007) and promotes it as a means for controlling agency costs associated with public companies and their separation of management and control (Jensen and Meckling, 1976). Characteristic of newly private firms, managers own a substantial portion of the firm's equity and are, therefore, more likely to make decisions to maximize long-term shareholder wealth (Demsetz, 1983). In addition to agency theory, empirical studies covering both eras of PTP transactions identify a number of common explanations surrounding the decision to go private, finding some internal financial explanations. The prevalent internal financial factor that appears critical in the going-private decision is low market value. Market value has been measured using market-to- book ratio (Bharath and Dittmar, 2010; Rao et al., 1995), price-earnings multiple (Maupin, 1987; Rao et al., 1995), market capitalization and enterprise value (Weir et al., 2005a), return on equity (Gleason et al., 2007), Q-ratios or market capitalization deflated by total assets (Weir et al., 2005b), and mean adjusted share price (Andres et al., 2007). The findings are generally in agreement that under-valuation of the company makes it an attractive PTP candidate (Renneboog and Simons, 2005).

Perhaps even more compelling are external factors, long-known to be key influences in strategic decision-making (Aldrich, 1979; Lawrence and Lorsch, 1967). Environmental forces that impact the PTP decision consist of the economic forces of credit and capital market conditions, and regulatory forces that increase public-firm compliance costs and place pressure on the equity component of executive incentive compensation. The low cost and availability of credit fueled going private in both the 1980s and later in the 2000s. When the availability of bank loans is large, the likelihood of going private increases, due to the importance of financing for the transaction (Bharath and Dittmar, 2010). Going-private deals in the U.S. are often conditioned on the private equity firms' ability to obtain debt financing (Regner, 2006). Moreover, when credit is otherwise available, corporations can go private in order to raise the debt needed for projects without public market reprisal. Leverage is attractive in that it can increase potential investment return for owners, and debt-financed private-equity takeovers are one way to increase the leveraged corporate assets.

Both the increased costs of regulatory compliance (GAO, 2006; Regner, 2006) and time and other restraints (Block, 2004) associated with being public subsequent to the passage of the Sarbanes-Oxley Act (SOX) of 2002, along with other similar restrictions in Europe prompted an increase in the frequency of PTP transactions (Engel et al., 2007). According to a study conducted by Foley and Lardner LLP (Hartmann, 2007), nearly one in four respondents then reported that they were considering going-private transactions as a result of corporate governance and public disclosures reforms. Compliance with SOX also brought about liability considerations. Corporate CEOs and CFOs must now personally certify the accuracy of all financial statements and are subject to criminal liability for improper diligence.

POST RECESSION ANTECEDENTS OF PRIVATE EQUITY TRANSACTIONS

After 2007, the number of PTP transactions declined substantially and continued to decrease through 2012 (Doney and Reston, 2012). Yet, a fair amount of firms did go public in 2008 through 2011, suggesting that market forces did not completely halt the previous trend. Internal firm conditions might have been significant enough to warrant the change despite difficulty in obtaining credit, and some private equity firms--namely, those that rely less on debt financing of their portfolio firms (Hoskisson et al., 2013) likely continued their conversion activity albeit at a lesser rate. While it is anticipated that many of the factors determined to be antecedents of the decision to go private prior to 2008 continued to spur PTP transactions, their effects might be more or less influential post the credit crisis and recession.

Driving decisions to go private are the corporate governance structures of some firms, which enabled them to go private despite a difficult credit market. For example, during the credit downturn, the incentives of executives and characteristics of the board of directors may have extended their influence to convince shareholders to tender their shares in a PTP transaction, and some shareholders might have been more amenable to this influence. Several governance variables were included in studies covering previous periods of going-private activity, but their results are equivocal. For example, the stock price reaction to the going-private announcement was found to be higher for companies with scattered shareholdings (Andres et al., 2007; Renneboog et al., 2007); alternatively, it was found that having controlling shareholders was favorably related to going private, as they will likely become part of the acquisition group (Koenig, 2004). This study addresses a dilferent research question, examining what, if any, differences in the governance mechanisms of firms existed through a comparison of PTP transactions between 2003 and 2007, the height of the second going-private boom, and those between 2008 through 2011, during the trough of the great recession.

Board of Directors Size

As perhaps the most critical of corporate governance mechanisms, boards of directors play an important role in setting the strategic direction of an organization. Thus, it makes sense that the structural variable of board size would impact its influence on corporate decisions, including going private (Braun and Latham, 2007). Yet, no clear finding emerges from the literature regarding the effects of board size. One meta analysis found a positive relationship between board size and improved financial performance (Dalton et al., 1999), while other researchers cast doubt on this relationship (e.g., Bhagat and Black, 1999).

Although Golden and Zajac (2001) suggest that small boards might better facilitate strategic change, large boards are generally viewed as possessing a depth of expertise on which to draw strategic guidance. The foundational theory of resource dependence proposes that boards of directors are one of the key options available to firms to minimize environmental dependence, and is the theory's area of greatest influence (Hillman et al., 2009). Directors bring benefits to the organization including information, access to channels, access to resources, and legitimacy (Pfeffer and Salancik, 1978). Although there is evidence to the contrary (Boyd, 1990), resource dependence theory suggests that larger boards help to better link an organization with its environment (Pfeffer, 1972), and are therefore associated with a firm's ability to obtain external financing, particularly in times of resource scarcity. In the years following the credit crisis, the difficulty in obtaining financing was a major obstacle in the ability to go private. Firms wishing to do so would therefore need the advice and support of their boards, and directors would need to be actively involved in soliciting funds and connecting with those private equity firms that had interested investors and were less inclined toward heavy reliance on debt financing, given private equity firm heterogeneity (Hoskissonet al., 2013; Wright et al., 2013). Thus, board size for PTP firms after 2007 should be larger, bringing more resources to the company with greater connections to financing opportunities.

Hypothesis 1: The size of hoards will be larger for firms who went private between 2008-2011 than for firms that went private prior to 2008.

Board of Directors Composition

Board composition has long been viewed as an important determinant of board effectiveness (Lorsch and Maclver, 1989). Research has largely focused on whether outsider- or insider-dominated boards have a greater influence on corporate strategy, with somewhat mixed results (Johnson et al., 1996). Firms whose boards are comprised of mostly outsiders have been found to be more likely to initiate strategic changes, such as corporate restructuring (Johnson et al., 1993; Pearce and Zahra, 1992).

An alternative perspective suggests that inside directors might provide better strategic direction than outsiders, given their understanding of their firm's operations, customers, and business model (Bruni-Bossio and Sheehan, 2013). Stewardship theory (Donaldson and Davis, 1994) suggests that insiders have better knowledge of their company and thus make more effective decisions than outside board members (Muth and Donaldson, 1998). Inside directors spend most of their time working at the firm and thus have specialized knowledge not available to outside directors; as a result, they spend much of their time at board meetings educating the outsiders and providing them with more detailed information (Baysinger and Hoskisson, 1990). In addition, their inside information can enhance top management commitment to pursue more risky, yet potentially profitable, investments (Baysinger et al., 1991). These types of investments might not be well received by public financial markets, particularly during economic downturns, thus prompting the decision to go private. Further, given the scarcity of credit in the years immediately following the great recession, the influence of inside directors to initiate strategic changes might have become more pronounced, and their role to encourage the firm's investment in new, risky projects would make the PTP decision more likely. Accordingly, the relationship between board composition and the decision to go private will vary with environmental conditions:

Hypothesis 2: The percentage of insider directors on the board will be higher for firms who went private between 2008-2011 than for firms that went private prior to 2008.

Executive Ownership Concentration

Concentration of ownership or block ownership is a measure of shareholder power; as the concentration of shares increases, shareholders can increasingly exercise significant control to further their interests (Hill and Snell, 1988). Executive ownership of stock is often associated with executive power and the ability to influence corporate decision-making (Donoher and Reed, 2007). In addition, high ownership concentration diminishes the benefits of being public, and thus may encourage the decision to go private (Bharath and Dittmar, 2010). Some researchers studying the PTP phenomenon note that concentration of executive ownership is favorably related to the likelihood of going private because the executive shareholders are likely to be part of the acquisition group, reducing the percentage of non-participating shareholders who must be bought out (Koenig, 2004).

Subsequent to the credit crisis, the ability to secure financing in order to buy out existing shareholders became more difficult. This factor would tend to have less impact on controlling managers, i.e., those with concentrated ownership blocks, who wish to take the company private, as they often intend to become owners of the new private corporation and this reduces the amount of needed debt financing. Previous studies support the position that high ownership stakes by the CEO (Weir et al., 2005b) and executive management (Maupin, 1987) will facilitate the PTP transaction. Executives who have large stakes in their firms will tend to benefit from going private and will use their ownership power to encourage the decision. This will be an even more prevalent and greater antecedent after 2007, when outside credit became less available and the CEO's role in promoting and executing the decision therefore became more instrumental.

Hypothesis 3: Ownership concentration among executives of firms who went from public to private status between 2008-2011 will be larger than firms who went from public to private status prior to 2008.

Institutional Investment

An institutional investor is defined as a highly regulated financial intermediary who invests in equities on behalf of its beneficial owners (Schneider, 2000). Institutional investors, including pension plans, mutual funds, insurance companies, investment companies, and banks have a high degree of investment sophistication and make substantial investments in corporate stock. In the U.S., institutional investors comprise approximately 73% of the ownership in the largest 1,000 publicly held corporations (Aguilar, 2013), making them formidable players in corporate reorganization decisions.

The role of institutional investors in the decision to go private is an important governance consideration. An institutional investor's reaction to the prospect of a publicly held firm in its investment portfolio going private might depend on the investor's continued commitment to remain invested in the company. Institutional investors are not homogenous, but exhibit diversity in terms of several investment criteria, including investment horizon (Johnson and Greening, 1999; Rubach and Sebora, 2009; Ryan and Schneider, 2002; 2003). The active investor hypothesis posits that institutional investors actively monitor managerial actions (Sundaramurthy et al., 2005). They have exceptional business and financial knowledge and can hire professional consultants to accurately evaluate a company's potential for profitability. However, a competing perspective advocates that institutional investors are myopic and focus solely on short-term returns (Bushee, 1998). Compared to lightly regulated hedge funds, mutual funds in particular must be able to liquidate their holdings at any point in time, given their regulatory requirements, creating pressure on mutual hind managers toward more immediate rather than long-term returns (Schneider and Ryan, 2011).

Given that shareholders often receive a generous premium when they tender their shares in the transaction, institutional investors with significant ownership concentration may be able to influence and even encourage the PTP transaction in order to benefit from the premium. Some institutional investors with a short-term investment horizon, including mutual funds, may benefit from the premium and then re-invest the proceeds elsewhere into other public companies. This may be more true after the great recession, when investors were anxious to divest themselves of holdings that they no longer viewed as profitable yet were suddenly offering a premium. Other institutional investors with a longer-term horizon, such as pension plans, might also choose to benefit from the premium, to then invest the proceeds in the private equity fund of the firm's new owner. Private equity firms' investors include pension funds, banks and other financial institutions as well as wealthy individuals (Nielsen, 2008). Thus, as the premiums associated with a portfolio firm's going private can fit into the investment strategy of both short-term and long-term oriented institutional investors, it is hypothesized that institutional ownership will favor transition to private status.

Hypothesis 4: The percentage of ownership by institutional investors will be higher for firms who went private between 2008-2011 than for firms who went private before 2008.

RESEARCH DESIGN AND METHOD

Using the Lexis/Nexis database, 172 U.S. public firms were identified that, between 2008 and 2011, filed a Schedule 13E3/A with the Security and Exchange Commission (SEC), which indicates a firm's decision to go private. A total of 95 of these companies had sufficient data available to test the hypotheses. A random sample of 95 companies was selected from a database that had been previously created representing companies that had filed a Schedule 13E3/A during the period from 2003 to 2007. The resulting sample falls within the range of sample size of existing PTP studies (e.g., Weir et al., 2005a; Gleason et al., 2007). Companies in both data sets were comprised of a broad cross-section of industries as indicted by their SIC codes, and no one industry dominated the sample, as evidenced in Table 2.

The dependent variable in the analysis was dichotomous; namely, 1 if the filing occurred after 2007, otherwise 0. Data for all hypotheses were collected either using Compustat or from individual company proxy statements filed with the SEC. Board size and composition, institutional ownership, ownership concentration among managers, and CEO compensation were determined from the most recent proxy statements in the SEC Edgar database in the year prior to the Schedule 13E3/A filing. Control variables included organizational size, as measured by total assets, and organizational performance, measured by the change in market value and share price over the study periods, as reported in Compustat. As CEOs are expected to have substantial influence in the decision to go private, CEO power, as measured by CEO tenure, was also included as a control variable.

RESULTS

As the dependent variable is binary, each of the four hypotheses was tested using binary logistic regression (Field, 2000). This approach has been used to examine the going-private phenomenon (e.g., Valenti and Schneider, 2012) and provides key statistics, including the Hosmer and Lemeshow, Wald, and exp(B) statistics. Tables 3 and 4 provide the means, standard deviations, correlations, and regression results. None of the control variables was significant. The coefficient of the percentage of outside directors was negative and significant at p < 0.05, thus supporting Hypothesis 2, that the presence of inside directors would predict a PTP transaction more so during the later period. The coefficient of the percentage of institutional ownership was positive and significant at p < 0.05 thus supporting Hypothesis 4. The other hypotheses (Hland H3) were not supported.

DISCUSSION

The results suggest that as environmental conditions changed and corporate transformation using this form of restructuring became less prevalent, some differences emerged in the internal antecedents that affect the decision to go private. Specifically, the findings support the premise that select governance antecedents, namely a greater proportion of internal directors and greater institutional investment, were significant to the going-private decision post the recession compared to prior to it. Insider representation on the board was positively associated with going private in the later period but not the early period, and similarly was not found to be a factor affecting firm performance in a study conducted before the great recession (Nicholson and Kiel, 2007). This suggests that during times of resource scarcity, first-hand knowledge of the firm's situation and commitment to the firm may have been critical in pushing the change to private ownership forward and gaining the approval of the board, including external members and shareholders. Inside directors were also in a better position to encourage private status in order to avoid public shareholder objections to risky investments. Similarly, PTP transactions post-recession were distinguished by a larger percentage of institutional ownership, which suggests that the influence of powerful, concentrated owners, whether they had short-term or long-term investment horizons, was necessary to effectuate the deal during this period.

Nevertheless, two of the hypotheses were not supported. In the case of board size, no significant difference was found between the two study periods. While some recent studies found a positive association between board size and board involvement in strategy or firm performance (e.g., Uadiale, 2010), the resources brought by board members to the companies in this study may not have been sufficiently sizable or relative to the decision to go private. Managerial ownership concentration was higher in the later period, although not significantly so. Assuming that these internal owners intended to remain on as investors after the PTP transaction, the need for additional financing to purchase their shares would be eliminated, thus facilitating the transaction during times of credit market difficulty.

Neither control variable of size or performance decline proved to be relevant. In fact, the means of size of both samples, measured by assets, were remarkably similar, suggesting no change in the size of firms opting to go private over the study period. One possible explanation is that smaller firms, although less flush with cash, may also have fewer minority investors to buy out, and, therefore, their need for financing was less. In the case of performance, one might posit that decreases in market value of companies after the recession would have to be more severe to prompt the PTP decision. The mean of share price change declined $3.08 in the later period, which reflects the overall market downturn during those years. However, neither the change in overall market value nor change in share price between the two periods was significant. Since the later period included 2010 and 2011, when markets began to recover, stock market price volatility may explain the lack of significance between the means. Finally, CEO tenure had no significant relationship in the decision to go private between the two periods, although at least one study has suggested that this measure of CEO power was relevant in the earlier era of the study (Weir et al., 2005b).

IMPLICATIONS AND FUTURE RESEARCH

Until recently, a frequent goal of many private company owners and managers was to take their company public and obtain the increased status and rewards from the infusion of capital, albeit while likely having to reckon with the vagaries associated with being part of a public equity market. Now, some suggest that the balance between the agency costs and incremental benefits of going public is undergoing a fundamental change that will transfer ownership from diversified public shareholders to private ownership or quasi-public ownership (Gilson and Whitehead, 2008). Indeed, the data support this suggestion. While the trend reflects all forms of mergers and acquisitions, corporate bankruptcies, and the relative dearth of IPOs, according to the World Bank (2014), the number of U.S. listed domestic companies has declined 53.7%, from a high of 8,851 in 1997 to the most recently available 4,102 in 2012. The going-private movement has had a large effect on the corporate landscape, and given regulatory trends, will likely re-emerge in a substantial way as credit conditions improve. For example, the behemoth Dell Corporation went private in late 2013 and was delisted from NASDAQ. Yet, even during the recent economic downturn and credit crisis, some firms did go private, leading to the interesting research question regarding the factors that encouraged this decision despite difficult environmental circumstances. The phenomenon of going private via buyout provides a rich environment for researching the intersection of internal organizational and external environmental forces, as they affect organizational decision-making and restructuring.

This study is one of the first to examine PTP activity after the economic downturn. The results suggest that further research is called for to examine other internal conditions and events that can trigger a change to private status in light of ever-changing environmental dynamics. For example, a finer-grained examination of board composition might further support the resource-based argument that firms that are able to co-opt external resources are in a better position to effectuate structural changes, particularly under difficult environmental conditions. Other organizational variables outside of the governance realm, such as level of diversification, might affect the decision to go private differently under favorable and unfavorable credit market conditions. It is also likely that characteristics of the involved private equity firms played a role in the later set of going private deals. As both credit market conditions and the ability of private equity firms to raise funds from investors suffered with the financial crisis of 2008 (Wright et al., 2013), private equity firms involved in the post-2008 deals were likely different from the vast majority of their competitors in ways that enabled their "contrarian" behavior.

While governance theorists have for decades considered the hostile takeover form of merger and acquisition to represent the external governance mechanism known as the "market for corporate control" (Manne, 1965), Bratton (2008: 509) suggests that "the buyout's recent salience implies that we need no longer assume that hostility is the acquisition mode best suited to post-merger disciplinary governance." In the 21st century, will going private replace the hostile takeover as the means by which firms will be radically restructured, so that they no longer operate as independent entities whose equity is traded in public financial markets? While it is perhaps too early to offer an opinion, Bratton's (2008) rumination is an interesting point and one worthy of consideration. Yet, although private equity firms have become an essential part of the global financial system, relatively little is known about their strategies and impact (McCahery and Vermeulen, 2008), given their lightly regulated environment and relative lack of transparency to the public. Further studies of private equity firms, including case studies of particular firms, are in order, as well as further study of the antecedents and effects of firms' decisions to going private under different environmental scenarios.

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Alix Valenti

Associate Professor

University of Houston--Clear Lake

Marguerite Schneider

Adjunct Associate Professor

New Jersey Institute of Technology
Table 1 Macro-Economic Indicators

      Indicator                 2003      2004      2005

1     US Unemployment Rate       6.0       5.5       5.1
      %

2     US Bank Non-               1.1        NA       0.7
      Performing Loans to
      Total Gross Loans %

3     US Listed (Public)      5295.0    5231.0    5143.0
      Domestic Companies

4     US GDP Annual Growth       2.8       3.8       3.4
      %

5     US Lending Interest        4.1       4.3       6.2
      Rate

6     S&P 500 Index (end      1111.9    1211.9    1248.3
      of Year)

7     Dow Jones Industrial   10453.0   10784.0   10718.0
      Index (end of Year)

8     New Privately Owned     1889.2    2070.1    2155.3
      Housing Units
      Authorized by
      Building Permits
      (000s)

9     U.S. LBO Deal Volume      55.7      98.6     118.9
      ($ Bil.)

10    LBO to Total M&A          11.4      12.3       114
      deal volume %

11    US Private-Equity      26265.0   56180.0   68568.0
      Backed Acquisitions
      Transaction Values
      ($ Bil.)

      Indicator                2006         2007       2008

1     US Unemployment Rate       4.6          4.6        5.8
      %

2     US Bank Non-               0.8          1.4        3.0
      Performing Loans to
      Total Gross Loans %

3     US Listed (Public)      5133.0       5130.0     5603.0
      Domestic Companies

4     US GDP Annual Growth       2.7          1.8       -0.3
      %

5     US Lending Interest        8.0          8.1        5.1
      Rate

6     S&P 500 Index (end      1418.3        1467.9     902.9
      of Year)

7     Dow Jones Industrial   12459.0      132628.0    8772.0
      Index (end of Year)

8     New Privately Owned     1838.9       1398.4      905.4
      Housing Units
      Authorized by
      Building Permits
      (000s)

9     U.S. LBO Deal Volume     383.2        389.0       52.4
      ($ Bil.)

10    LBO to Total M&A          27.6         29.8        6.4
      deal volume %

11    US Private-Equity      112915.0     183218.0   64079.0
      Backed Acquisitions
      Transaction Values
      ($ Bil.)

      Indicator                2009       2010       2011

1     US Unemployment Rate       9.3        9.6        8.9
      %

2     US Bank Non-               5.0        4.4        3.8
      Performing Loans to
      Total Gross Loans %

3     US Listed (Public)      4401.0     4279.0     4171.0
      Domestic Companies

4     US GDP Annual Growth      -2.8        2.5        1.8
      %

5     US Lending Interest        3.3        3.3        3.3
      Rate

6     S&P 500 Index (end      1116.6     1257.6     1258.9
      of Year)

7     Dow Jones Industrial   104317.0   11577.0    12221.0
      Index (end of Year)

8     New Privately Owned      583.0      604.6      624.1
      Housing Units
      Authorized by
      Building Permits
      (000s)

9     U.S. LBO Deal Volume      30.0       90.7       74.3
      ($ Bil.)

10    LBO to Total M&A           4.2       11.3        7.6
      deal volume %

11    US Private-Equity      57884.0    101808.0   95369.0
      Backed Acquisitions
      Transaction Values
      ($ Bil.)

Item 1 (Unemployment Rate) from US Labor Force Statistics from the
Current Population Survey; 16 years and older, at
http://data.bls.gov/timeseriesA-NS 14000000

Items 2-5 are from the World Bank at
http://data.worldbank.org/indicator. Lending rate is the short and
medium-term interest rate for the private sector; it is then
differentiated by applicant creditworthiness.

Items 6 and 7 are from Yahoo finance at finanoe.yahoo.com

Item 8 is from the US Census at http://www.census.
gov/economic-indicators/

Items 9 and 10 are from Standard and Poors at http://www.
standardandpoors.
com/products-services/articles/en/us/?articleType+HTML&assetID=
1245362578768

Item 11 is from the 2014 National Venture Capital Association Yearbook
by Thomson Reuters and MoneyTree available at http://www.nvca.
org.index.php?option=com_content&view=article&id=257&Itemid=103.
Private equity as defined here is broad, including venture capital,
buyouts, mezzanine, and other private equity-financed companies.

Table 2 SIC Codes: Breakdown of Companies by Industry

SIC Codes    Period Covered in the Study

             2008-2011   2003-2007

1000-1999        6           3
2000-2999       12          12
3000-3999       13          18
4000-4999        9          10
5000-5999       13          17
6000-6999       18          17
7000-7999       15          13
8000-8999        5           5
9000-9999        4           0

Table 3 Means, Standard Deviations, and Correlations

                Means     S.D.       1          9           3

Post 2007       00.5000   00.50132   1.0000
transaction

Assets          05.0700   03.15000   0.0400      1.0000

Change Market   -0.7322   49.54000   -0.0020    -0.0620      1.0000
Value

Change Share    -3.0800   39.51000   -0.0790    -0.181 *     0.612 **
Price

CEO Tenure      31.0100   24.67000   0.0030     -0.0150     -0.1190

Board Size      07.2000   02.40000   -0.0660     0.427 **    0.0420

Outsider        00.6898   00.14940   -0.162 *    0.039 **   -0.0590
Percentage

Institutional   00.2108   00.50750    0.214 *    0.0310      0.0530
Invest Pctg.

Ownership       00.6065   01.44000    0.0520    -0.1110      0.0070
Concent.

                4           5        6          7        8          9

Post 2007
transaction

Assets

Change Market
Value

Change Share     1.0000
Price

CEO Tenure      -0.208 **    1.000

Board Size       0.0120     -0.035    1.0000

Outsider        -0.1400     -0.059    0.169 *    1.000
Percentage

Institutional   -0.0060     -0.050   -0.012     -0.096   1.00000
Invest Pctg.

Ownership        0.1080     -0.003   -0.098     -0.102   0.728 **   1
Concent.

* Correlation is significant at the 0.05 level (2-tailed)

** Correlation is significant at the 0.01 level (2-tailed)

Table 4 Results of Regression Analysis

                            B       S.E.     Wald *    df

Assets                    0.164     0.236    0.245     1
Change Market Value       0.000     0.000    0.223     1
Change in Price           -0.015    0.016    0.901     1
CEO Tenure                -0.005    0.020    0.063     1
Board Size                0.252     0.146    2.705     1
Percent Outsiders         -0.407    0.167    5.941     1
Percent Inst. Investors   2.728     0.877    9.669     1
Ownership Concentr.       0.017     0.255    0.004     1
Constant                  0.157     0.172    0.820     1

                          Sig.    Exp(B) **   95% C.I. for EXP(B)

                                              Lower   Upper

Assets                    0.486     1.179     0.742   1.872
Change Market Value       0.636     1.000     1.000   1.000
Change in Price           0.342     0.985     0.956   1.016
CEO Tenure                0.801     0.995     0.956   1.035
Board Size                0.100     1.273     0.955   1.698
Percent Outsiders         0.015     0.666     0.480   0.923
Percent Inst. Investors   0.002    15.303     2.742   85.414
Ownership Concentr.       0.948     0.948     0.610   1.676
Constant                  0.365     0.359

N = 190
Chi Sq = 28.543
RSq=0.139 (Cox and Snell); 0.186 (Nagelkerke)
-2LL = 234.155
Hosmerand Lemeshow = 0.230
Percent Predicted = 63.7
* Wald test statistic
** Odds ratio
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Author:Valenti, Alix; Schneider, Marguerite
Publication:Journal of Managerial Issues
Article Type:Statistical table
Geographic Code:1USA
Date:Jun 22, 2014
Words:7838
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