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- All Subjects: Corporations--Finance.
- Creators: Ahn, Seung
- Creators: Dong, Qi
Description
This dissertation provides an analysis of the effects of public secondary equity offerings by private equity sponsors at portfolio firms that have become publicly traded entities via initial public offerings. Such secondary offerings were rare prior to 2000, but in recent years have become an increasingly common form of financial activity. A large sample of these offerings is analyzed within the framework of corporate finance theory, taking into account that they allow a private equity sponsor to sell off a large, controlling block of common stock to dispersed investors. This work provides a basis to draw conclusions about the effects of these secondary offerings on shareholder wealth and the implications for the firm's subsequent operating performance (profitability). The results show that that there is a significant decline in portfolio firm value at announcements of secondary offerings by private equity, and that such offerings are not a precursor of future underperformance. Instead, there is greater share liquidity and higher industry-adjusted performance after these secondary offerings. Moreover, the proportion of portfolio firms that subsequently become bankrupt is significantly less than that of benchmark firms. There is no evidence of an effect of the size of the secondary offering on the magnitude of the change in share price, but the reputation of private equity sponsors has a significant effect on the share price reaction. Overall, the evidence from these secondary equity offerings suggests that private equity successfully prepares portfolio firms for exit from private equity control, implying that the market can expect that the stand-alone public firm will operate effectively after the change in ownership structure associated with the exit of private equity.
ContributorsDong, Qi (Author) / Sushka, Marie E. (Thesis advisor) / Slovin, Myron B. (Thesis advisor) / Stein, Luke C.D. (Committee member) / Arizona State University (Publisher)
Created2015
Description
I study the importance of financial factors and real exchange rate shocks in explaining business cycle fluctuations, which have been considered important in the literature as non-technological factors in explaining business cycle fluctuations. In the first chapter, I study the implications of fluctuations in corporate credit spreads for business cycle fluctuations. Motivated by the fact that corporate credit spreads are countercyclical, I build a simple model in which difference in default probabilities on corporate debts leads to the spread in interest rates paid by firms. In the model, firms differ in the variance of the firm-level productivity, which is in turn linked to the difference in the default probability. The key mechanism is that an increase in the variance of productivity for risky firms relative to safe firms leads to reallocation of capital away from risky firms toward safe firms and decrease in aggregate output and productivity. I embed the above mechanism into an otherwise standard growth model, calibrate it and numerically solve for the equilibrium. In my benchmark case, I find that shocks to variance of productivity for risky and safe firms account for about 66% of fluctuations in output and TFP in the U.S. economy. In the second chapter, I study the importance of shocks to the price of imports relative to the price of final goods, led by the real exchange rate shocks, in accounting for fluctuations in output and TFP in the Korean economy during the Asian crisis of 1997-98. Using the Korean data, I calibrate a standard small open economy model with taxes and tariffs on imported goods, and simulate it. I find that shocks to the price of imports are an important source of fluctuations in Korea's output and TFP in the Korean crisis episode. In particular, in my benchmark case, shocks to the price of imports account for about 55% of the output deviation (from trend), one third of the TFP deviation and three quarters of the labor deviation in 1998.
ContributorsKim, Seon Tae (Author) / Prescott, Edward C. (Thesis advisor) / Rogerson, Richard (Committee member) / Ahn, Seung (Committee member) / Low, Stuart (Committee member) / Arizona State University (Publisher)
Created2011