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We are able to shed light on the black box of restructuring tools private equity investors use to improve the operational performance of their portfolio companies. By building on previous work considering performance evaluation of PE backed companies, we analyze whether private equity improves operating efficiency and which of the typical restructuring tools are the main performance drivers. Using a set of over 300 international leveraged buyout transactions of the last thirty years, we find that while there is vast improvement in operational efficiency, these gains vary considerably. Our top performing transactions are subject to strong equity incentives, frequent asset restructuring and tight control by the investor. Furthermore, investors’ experience has a positive influence while financial leverage has no influence on operational performance.
This study investigates the transition from being a listed company with a dispersed ownership structure to being a privately held company with a concentrated ownership structure. We consider a sample of private equity backed portfolio companies to evaluate the consequences of the corporate governance changes on operational performance. Our analysis shows significant positive abnormal growth in several performance ratios for the private period of our sample companies relative to comparable public companies. These performance differences come from the increase in ownership concentration after the leveraged buyout transaction.
We examine trust and trustworthiness of individuals with varying professional preferences and experiences. Our subjects study business and economics in Frankfurt, the financial center of Germany and continental Europe. In the trust game, subjects with a high interest in working in the financial industry return 25 percent less than subjects with a low interest. We find no evidence that the extent of professional experience in the financial industry has a negative impact on trustworthiness. We also do not find any evidence that the financial industry screens out less trustworthy individuals in the hiring process. In a prediction game that is strategically equivalent to the trust game, the amount sent by first-movers was significantly smaller when the second-mover indicated a high interest in working in finance. These results suggest that the financial industry attracts less trustworthy individuals, which may contribute to the current lack of trust in its employees.
The paper analyzes the mutual influence of the capital structure and the investment decision of a bank, as well as the incentive effects of the bank executives compensation schemes on these decisions. In case the government implicitly or explicitly insures deposits and/or the banks debt, banks are incentivized to invest in risky assets and to have a high leverage. Capital regulation could potentially solve this excessive risk taking problem. However, this is only possible if the regulator can observe and properly measure the investment risks of the bank, which was called into question during the 2008-09 financial crisis. Hence, we propose a regulatory approach that is also able to implement the first best risk taking levels by the bank, but does not require the regulator to know the investment risk of the bank. The regulatory approach involves the implementation of capital requirements, which are made contingent on the management compensation.
Improving financial conditions of individuals requires an understanding of the mechanisms through which bad financial decision-making leads to worse financial outcomes. From a theoretical point of view, a key candidate inducing mistakes in financial decision-making are so called present-biased preferences, which are one of the cornerstones of behavioral economics. According to theory, present-biased households should behave systematically different when it comes to consumption and saving decisions, as they should be more prone to spending too much and saving too little.
In this policy letter we show how high frequency financial transaction data available in digitized form allows to precisely categorize individual financial-decision making to be present-biased or not. Using this categorization, we find that one out of five individuals in our sample exhibits present-bias and that this present-biased behavior is associated with a stronger use of overdrafts. As overdrafts represent a particularly expensive way of short-term borrowing, their systematic use can be interpreted as a measure of suboptimal financial-decision making. Overall, our results indicate that the combination of economic theory and Big Data is able to generate valuable insights with applications for policy makers and businesses alike.
We build on previous work on operational performance evaluation of private equity portfolio companies as we are able to at least partially decrypt the black box consisting of restructuring tools these investors use and the corresponding impact on their portfolio companies. Beyond answering whether private equity improves operating efficiency we figure out which of the typical restructuring tools drive operating efficiency. Using a set of over 300 international leveraged buyout transactions in the last thirty years we find that while there is vast improvement in operational efficiency these gains vary considerably. Our top performing transactions are subject to strong equity incentives, frequent asset restructuring and tight control by the investor. Furthermore, investors experience has a positive and financial leverage a negative influence on operational performance.
Basel III and CEO compensation in banks: pay structures as a regulatory signal : [March 6, 2013]
(2013)
This paper proposes a new regulatory approach that implements capital requirements contingent on managerial compensation. We argue that excessive risk taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate governance failures within banks. The idea of the proposed regulation is to utilize the compensation scheme to drive a wedge between the interests of top management and shareholders to counteract shareholder risk-shifting incentives. The decisive advantage of this approach compared to existing regulation is that the regulator does not need to be able to properly measure the bank investment risk, which has been shown to be a difficult task during the 2008-2009 financial crisis.
We investigate the decisions of listed firms to go private once again. We start by revealing that while a significant number of firms which go public is VC-backed, an overproportional share of these VC-backed firms go private later on (they stay on the exchange for an average of 8.5 years). We interpret this very robust pattern such that IPOs of VC-backed firms are to a large extent a temporary rather than a permanent feature of the corporate governance of these firms. We investigate various potential hypotheses why VCs actually seem to be able to bring marginal firms to the exchange by relating the going-private decisions to various characteristics of the IPO market as well as to VC characteristics. We find strong support for the certification ability of VCs: more experienced and reputable VCs are more able to bring marginal firms to public exchanges via an IPOs. These marginal firms backed-by more reputable and experienced VCs are more likely to go private later on. Hence, our analysis suggests that IPOs backed by experienced VCs are most likely to be a temporary rather than the final stage in the life of the portfolio firm. We find no support that reputable VCs underprice their IPO-exits more implying that they have no need to leave more money on the table to take the marginal firms public.
Sondierungsstudie im Auftrag des Bundesministeriums für Bildung und Forschung: Die jüngste Finanzkrise und die darauf folgende Staatsschuldenkrise hat sowohl wirtschaftlich als auch gesellschaftlich tiefgreifende Spuren hinterlassen. Dabei wurden auch sehr deutliche Lücken in der Forschung offenbar. Ziel dieser Studie ist es, aufbauend auf dem aktuellen Forschungsstand weiteren Forschungsbedarf in den wesentlich mit Finanzkrisen verbundenen Bereichen aufzuzeigen. Es werden fünf Forschungsbereiche mit jeweiligen Unterthemen vorgeschlagen. Diese fünf Forschungsbereiche gehen unmittelbar aus der Struktur und den Mechanismen der Finanz- und Staatsschuldenkrise hervor. Dabei wird besonderes Augenmerk auf die wirtschafts- und regulierungspolitische Relevanz der Themen sowie dem Umstand getragen, dass die Beantwortung vieler der Fragen interdisziplinäre Zusammenarbeit erfordert.
Finanzkrisen sind inherent mit dem Bankenmodell verbunden. Aufgrund von Verbindungen der Banken untereinander können Probleme einzelner Institute auf andere Institute übertragen werden. Diese systemischen Risiken können das gesamte Finanzsystem destabilisieren. Das Finanzsystem nimmt durch die Kreditvergabe und Bereitstellung von Transaktionssystemen eine herausragende Stellung in einer Volkswirtschaft ein, wodurch stabilisierende Eingriffe der Politik notwendig werden können. Eingriffe zur Wiederherstellung von Stabilität können sehr kostspielig sein und, wie aktuell eindrucksvoll belegt, die stabilisierenden Staaten selbst destabilisieren. Die alternativen Eingriffe vorab betreffen neben der Geldpolitik vor allem regulatorische Eingriffe. Im besonderen sind die Corporate Governance von Finanzinstituten und die Informationsbereitstellung bzw. Transparenz innerhalb des Finanzsektors von Bedeutung. In den vergangen Jahren wuchs vor dem Hintergrund von Regulierung zudem ein paralleles Schattenbankensystems heran, das in seiner Bedeutung dem traditionellen Bankensystem nur unwesentlich nachsteht.
Zwar sind die groben Zusammenhänge und Auswirkungen in den einzelnen Bereichen bekannt, jedoch ist für ein tiefgreifendes Verständnis als Grundlage zur Vermeidung bzw. Eindämmung zukünftiger Krisen sowie zur Folgenabschätzung von Regulierung weitere Forschung unabdingbar.
Households regularly fail to make optimal financial decisions. But what are the underlying reasons for this? Using two conceptually distinct measures of time inconsistency based on bank account transaction data and behavioral measurement experiments, we show that the excessive use of bank account overdrafts is linked to time inconsistency. By contrast, there is no correlation between a survey-based measure of financial literacy and overdraft usage. Our results indicate that consumer education and information may not suffice to overcome mistakes in households’ financial decision-making. Rather, behaviorally motivated interventions targeting specific biases in decision-making should also be considered as effective policy tools.
We present the results of two-pion production in tagged quasi-free np collisions at a deutron incident beam energy of 1.25 GeV/c measured with the High-Acceptance Di-Electron Spectrometer (HADES) installed at GSI. The specific acceptance of HADES allowed for the first time to obtain high-precision data on π+π− and π−π0 production in np collisions in a region corresponding to large transverse momenta of the secondary particles. The obtained differential cross section data provide strong constraints on the production mechanisms and on the various baryon resonance contributions (∆∆, N(1440), N(1520), ∆(1600)). The invariant mass and angular distributions from the np → npπ+π −and np → ppπ−π0 reactions are compared with different theoretical model predictions.
Many QCD based and phenomenological models predict changes of hadron properties in a strongly interacting environment. The results of these models differ significantly and the experimental determination of hadron properties in nuclear matter is essential. In this paper we present a review of selected physics results obtained at GSI Helmholtzzentrum für Schwerionenforschung GmbH by HADES (High-Acceptance Di-Electron Spectrometer). The e+e− pair emission measured for proton and heavy-ion induced collisions is reported together with results on strangeness production. The future HADES activities at the planned FAIR facility are also discussed.
The High Acceptance DiElectron Spectrometer HADES [1] is installed at the Helmholtzzentrum für Schwerionenforschung (GSI) accelerator facility in Darmstadt. It investigates dielectron emission and strangeness production in the 1-3 AGeV regime. A recent experiment series focusses on medium-modifications of light vector mesons in cold nuclear matter. In two runs, p+p and p+Nb reactions were investigated at 3.5 GeV beam energy; about 9·109 events have been registered. In contrast to other experiments the high acceptance of the HADES allows for a detailed analysis of electron pairs with low momenta relative to nuclear matter, where modifications of the spectral functions of vector mesons are predicted to be most prominent. Comparing these low momentum electron pairs to the reference measurement in the elementary p+p reaction, we find in fact a strong modification of the spectral distribution in the whole vector meson region.
New results on the differential cross section in deuteron-proton elastic scattering are obtained at the deuteron kinetic energy of 2.5 GeV with the HADES spectrometer. The angular range of 69° – 125° in the center of mass system is covered. The obtained results are compared with the relativistic multiple scattering model calculation using the CD-Bonn deuteron wave function. The data at fixed scattering angles in the c.m. are in qualitative agreement with the constituent counting rules prediction.
The production of Σ0 baryons in the nuclear reaction p (3.5 GeV) + Nb (corresponding to sNN=3.18 GeV) is studied with the detector set-up HADES at GSI, Darmstadt. Σ0s were identified via the decay Σ0→Λγ with subsequent decays Λ→pπ− in coincidence with a e+e− pair from either external (γ→e+e−) or internal (Dalitz decay γ⁎→e+e−) gamma conversions. The differential Σ0 cross section integrated over the detector acceptance, i.e. the rapidity interval 0.5<y<1.1, has been extracted as ΔσΣ0=2.3±(0.2)stat±(−0.6+0.6)sys±(0.2)norm mb, yielding the inclusive production cross section in full phase space σΣ0total=5.8±(0.5)stat±(−1.4+1.4)sys±(0.6)norm±(1.7)extrapol mb by averaging over different extrapolation methods. The Λall/Σ0 ratio within the HADES acceptance is equal to 2.3±(0.2)stat±(−0.6+0.6)sys. The obtained rapidity and momentum distributions are compared to transport model calculations. The Σ0 yield agrees with the statistical model of particle production in nuclear reactions. Keywords: Hyperons, Strangeness, Proton, Nucleus.
n this paper we report on the investigation of baryonic resonance production in proton-proton collisions at the kinetic energies of 1.25 GeV and 3.5 GeV, based on data measured with HADES. Exclusive channels npπ+ and ppπ0 as well as ppe+e− were studied simultaneously in the framework of a one-boson exchange model. The resonance cross sections were determined from the one-pion channels for Δ(1232) and N(1440) (1.25 GeV) as well as further Δ and N* resonances up to 2 GeV/c2 for the 3.5 GeV data. The data at 1.25 GeV energy were also analysed within the framework of the partial wave analysis together with the set of several other measurements at lower energies. The obtained solutions provided the evolution of resonance production with the beam energy, showing a sizeable non-resonant contribution but with still dominating contribution of Δ(1232)P33. In the case of 3.5 GeV data, the study of the ppe+e− channel gave the insight on the Dalitz decays of the baryon resonances and, in particular, on the electromagnetic transition form-factors in the time-like region. We show that the assumption of a constant electromagnetic transition form-factors leads to underestimation of the yield in the dielectron invariant mass spectrum below the vector mesons pole. On the other hand, a comparison with various transport models shows the important role of intermediate ρ production, though with a large model dependency. The exclusive channels analysis done by the HADES collaboration provides new stringent restrictions on the parameterizations used in the models.
The knowledge of baryonic resonance properties and production cross sections plays an important role for the extraction and understanding of medium modifications of mesons in hot and/or dense nuclear matter. We present and discuss systematics on dielectron and strangeness production obtained with HADES on p+p, p+A and A+A collisions in the few GeV energy regime with respect to these resonances.
his contribution aims to give a basic overview of the latest results regarding the production of resonances in different collision systems. The results were extracted from experimental data collected with HADES that is a multipurpose detector located at the GSI Helmholtzzentrum, Darmstadt. The main points discussed here are: the properties of the strange resonances Λ(1405) and Σ(1385), the role of Δ’s as a source of pions in the final state, the production dynamics reflected in form of differential cross sections, and the role of the ϕ meson as a source for K− particles.