Domestic versus Foreign Investors: An Empirical Analysis of Rates of Success of Leveraged Buyout Investments

Currently, LBO investment research has been primarily conducted using US data and rarely looks at cross border affects. There have been some studies that use international LBO data, but never to study the effect of geography on investment success. Analyzi ng the geography of international LBO investments brings up a number of interesting questions that we wish to address in the proposed research project. First, when investing in a LBO firm, how do foreign investors compare in effectiveness with domestic in vestors or joint investments with both domestic and foreign investors? Second, how does the distance from the home country of the investor to that of the acquired firm affect the success of the LBO investments? Third, how does the distance from the home c ountry of the LBO investment to that of the investing firm determine the propensity of a foreign investor to engage in a joint investment with a domestic investor? The idea to analyze the geography of international LBO investments is unique and will grea tly increase the research field?s understanding of cross border LBO investments. International LBO data collection is difficult, but the project team already has access to the most relevant and vital data sources. Additional information on missing observa tions present in the current datasets will need to be collected. This can be achieved by hand collection by a research assistant. Funding for hiring a research assistant is vital to the success of the project due to the time consuming nature of hand colle cting data. The proposed clean and comprehensive international sample is needed to be able shed light on these questions. The research project will increase our knowledge of the effectiveness of foreign versus domestic investors in adding value to LBO fir ms. Additionally, by identifying the optimal LBO backing structure, this will improve the ability of investors to appropriately assign firm valuations and the overall riskiness of an investment.