On the Determinants of Leveraged Buyout activity: A comparison between developed and developing economies

I study Leveraged buyouts (LBOs) internationally over the period 1980-2012. Returns on LBOs are on average higher for developed markets. However, returns of LBOs during high economic growth periods are high for developing nations relative to developed economies. On the other hand returns in developing nations are lower when compared to the returns in developed nations in periods of negative economic growth. During periods of negative economic growth, the returns in developing nations do not compensate for the high risk associated with them. Developing countries are more unstable relative to developed countries during conditions of boom as well as collapse. Exit times for LBO transactions in developing economies are therefore shorter relative to developed economies in periods of high economic growth rate. This is because PE investment firms would like to exit soon and lock in their profits. During periods of negative economic growth rate, the LBOs in developing nations exit sooner. When things go badly in the developing economies, they are magnified multiple times. Hence the PE firms would like to avoid further losses and hence exit sooner. In periods of low or medium economic growth, LBOs in developing economies take longer times to exit. Reputed firms and small firms have higher returns and exit sooner. Club deals have higher returns and exit sooner when compared with single PE firm deals, until the year there was higher government on the motive of club deals. After 2006 there was higher government scrutiny which make club deals take longer time to exit. Club deals in developing economies are on average not profitable and exit sooner.