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with Paul Lavery & William Megginson. (Journal of Corporate Finance)
with Paul Lavery & William Megginson. (Journal of Corporate Finance)
Abstract:
We present the first large-sample analysis of growth equity (GE) investment using a sample of 1,512 UK private companies over 2000-2021 and compare the post-investment performance of investee firms to matched companies that did not receive GE investment. The United Kingdom is an ideal empirical setting for this study because it is the second largest private capital market and financial information is available for all UK limited companies. GE target companies are younger, smaller, more intangible-asset intensive and more rapidly growing than the general pool of UK private companies. Target firms then dramatically outperform a matched sample of non-GE backed private companies after investment with respect to sales and asset growth, employment, and earnings growth. Much of this extra expansion is financed by significantly faster growth in leverage than for non-GE backed firms. This higher leverage causes GE backed companies to encounter financial distress more frequently than matching firms, but treated firms can navigate distress—including bankruptcy—relatively more successfully than matching distressed firms. We also compare GE-backed companies to British private companies receiving venture capital or private equity (buyout) investment.
Keywords: Private equity, Growth equity, Buyouts, Firm performance, Firm survival.
JEL Classification: F140, G01, G23, G28, G32, G34.
Presentations: 41st French Finance Association (AFFI, 2025), Corporate Finance Days 2024, 2024 Private Equity Research Consortium (PERC) Spring Symposium, 2024 EFiC Conference in Banking and Finance, 2024 Financial Management Association European Conference, AfriMed Summer Conference (2024), 8th Entrepreneurial Finance (ENTFIN Munich), ENTFIN Doctoral Colloquium, Financial Engineering and Banking Society (FEBS 2024), 2024 Academy of International Business Annual Meeting (Seoul), Université Paris Dauphine (2024), University of Exeter (2024), University of Oklahoma (2023).
Featured In: Financial Times.
Charting New Frontiers: A Contemporary Perspective on State Ownership
Charting New Frontiers: A Contemporary Perspective on State Ownership
with William Megginson, Peter Mueller, and Leonid Pugachev. (Corporate Governance: An International Review).
with William Megginson, Peter Mueller, and Leonid Pugachev. (Corporate Governance: An International Review).
Abstract:
Research Question/Issue: Seminal research on government ownership characterizes state-owned firms and funds as less efficient than their privately owned counterparts. Despite this, state-owned enterprises (SOEs) and sovereign wealth funds (SWFs) have grown markedly in size and significance since the turn of the century. We survey the evolving academic literature and discuss several global phenomena that help explain the dramatic growth of state capitalism.
Research Findings/Insights: We examine how economic development considerations, agency problems, access to government resources, and public perceptions of legitimacy shape the costs and benefits of government ownership. We apply these theoretical lenses to four phenomena: the rising tide of deglobalization; a technological arms race, primarily between the U.S. and China; political and economic shocks; and rising energy prices. Taken together, these phenomena suggest rising benefits and potentially falling costs of government ownership. We posit that these dynamics help explain SOEs' recent resurgence and SWFs' rapid expansion.
Theoretical/Academic Implications: We advance four extant theories of government ownership by applying them jointly to SOEs and SWFs, highlighting similarities and differences in how each theory pertains to these distinct vehicles of state capitalism. We also extend agency theory by integrating the corporate finance concept of "agency costs of free cash flow" into the state-ownership context. This helps explain why SWFs often arise in countries with large SOEs and illuminates SOE-SWF interactions.
Practitioner/Policy Implications: Our analysis interprets several observable global trends in government strategies of state ownership. We argue that the 21st-century geopolitical and economic landscape renders SOEs and SWFs more viable in specific contexts. The success (or failure) of these depends largely on their governance frameworks.
Keywords: state-owned enterprises, sovereign wealth funds, de-globalization, privatization, State-owned enterprises, sovereign wealth funds, de-globalization, privatization.
JEL classification: E02, K23, L13, G32, G15, G38, O13, P27, P28.
Abstract:
Growth equity (GE) funds have emerged as the third major private equity asset class—alongside venture capital (VC) and buyout (B/O) funds--for investors, and as an important new source of external equity capital for private companies and entrepreneurs wishing to fund growth without surrendering control. GE funds have the same organizational and operational structure as VC and B/O funds, and their private-firm investments generally fall on the corporate finance spectrum between late-stage VC and buyout financing. Virtually unknown before 2000, GE funds now invest over $100 billion annually, have AUM of more than $1.1 trillion, and dry powder totaling $350 billion. Their emergence as a key corporate finance tool has allowed entrepreneurial firms to remain private much longer than in the past and in many ways GE financing has replaced going public as a source of growth capital. We define growth equity funding and trace the development of GE fund-raising and investment as described in the professional literature. We also analyze a large sample of VC, GE, and B/O funds and deals drawn from the Preqin database and show that GE shares characteristics with both VC and B/O funding but should be considered a distinct new asset class and corporate finance vehicle. We conclude by briefly describing a suggested GE research agenda.
Keywords: Private Equity; Growth Equity; Venture Capital; Buyouts.
JEL Classification: F140, G28.
Presentations: 7th Entrepreneurial Finance Association Conference (2023), University of New Mexico (2023), Dalhousie University (2023), Barcelona School of Economics Summer Forum -- Entrepreneurship (2023), Bulgarian Council for Economic Analyses (BCEA) Annual Conference (2023), University of Oklahoma (2023), FMA Annual Meeting (2022).
Privatization and State Ownership in a (Hopefully) Post-Pandemic World
Privatization and State Ownership in a (Hopefully) Post-Pandemic World
with William Megginson (World Bank).
with William Megginson (World Bank).
Abstract:
This study summarizes the recent economic and political developments relating to the privatization of state-owned enterprises and then surveys the extensive recent research examining these issues empirically. Until the onset of the Global Financial Crisis of 2008-09, there was an unambiguous global trend towards reducing government ownership of business enterprise, but this trend has since at least been slowed, and perhaps even reversed. We discuss the factors that have promoted a global resurgence of state ownership, then assess whether privatization remains a viable policy option for improving the operating and financial performance of divested companies. Recent performance studies continue to document significant improvements after companies are divested. We also examine when, where, and how governments decide to privatize individual companies and how these sales are priced. Recent academic and professional research categorizes and evaluates various types of state owners; examines determinants of the level of state ownership; studies how state ownership impacts the valuation of corporate assets and examines the relative efficiency of state versus private ownership; and assesses how state ownership impacts corporate financial policies, especially capital investment. This research highlights that different types of state owners have very different impacts on corporate value and performance and that state ownership generally has a significant, and most pernicious, impact on corporate investment and financial policies. The separate effect of state ownership on corporate valuation is less clear-cut. This survey concludes by summarizing recent empirical research examining the relationship between state ownership of business assets and financial markets and institutions and shows that almost all studies examining state-owned banking show that state ownership reduces banks’ efficiency.
JEL Classification: G32, G15, G38.
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