Red and Blue: The relationship between the institutional context and the performance of leveraged buyout investments

Aviad Pe'Er, Oliver Gottschalg

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

This paper advances the debate concerning the relationship between politics and business conduct by investigating the influence of the institutional context on leveraged buyout investments. We propose that the formal and informal institution context in 'red' states (those dominated by the U.S. Republican Party) is more aligned with the principal strategies through which leveraged buyout investors create value than such a context is in 'blue' states (those dominated by the Democratic Party). Therefore, according to institutional theory, one would expect, ceteris paribus, a higher likelihood of buyout transactions in red states and vice versa. We analyze a sample of 10,746 U.S. buyout investments in 4,633 distinct target companies made by 2,396 different funds managed by 1,300 private equity firms from 1980 to 2003. The results indicate strong evidence of a positive association between a more aligned institutional context and both the volume of buyout activity and different measures of performance for these buyouts.

Original languageEnglish (US)
Pages (from-to)1356-1367
Number of pages12
JournalStrategic Management Journal
Volume32
Issue number12
DOIs
StatePublished - Dec 2011
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Strategy and Management

Keywords

  • institutional theory
  • political views
  • private equity

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