Abstract

The private equity (PE) industry is more internationally oriented than ever before with a growing number of cross-border buyouts. This raises the question whether international investors differ from local ones and to which extent the origin of the PE firm influences the exit pattern of their PE backed companies.

In order to exit, PE firms have to signal the quality of the portfolio company including the value of their involvement during the buyout. However, the mechanisms and procedures that ensure PE firms’ effective guidance and value adding in the domestic country are not automatically transferable towards non-domestic regions. For this reason, we expect non-domestic PE firms to face a liability of foreignness and to signal a lower quality. We expect this liability to be an important driver of the exit pattern. Exits towards new owners with higher needs for signals of quality such as listings and trade sales will be more challenging to achieve.

The goal of this study is twofold. First, differences between exits of domestically versus internationally funded buyouts are studied, both main and moderating effects of origin are examined. Second, this research will study to which extent PE firms’ liabilities of foreignness are compensated through local and multinational PE firm experience.

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