Browsing by Author "Aalto, Jari"

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Implications of the Reputation Effect on Private Equity-Backed Companies’ Governance: Evidence from European Debt Capital Markets
(2017) Aalto, Jari
School of Business | Master's thesis
The purpose of this thesis is to study the reputation effect of European private equity investors. I aim to answer the question of whether European debt investors view private equity owners as large exploitative shareholders that take advantage of their portfolio companies’ bondholders, leading to investors demanding higher yield spreads on the PE-backed companies’ debt. I focus my analysis on the European debt capital markets and corporate loan markets by studying the bonds and loans issued by PE-backed and non-PE-backed companies from 17 European countries during the period between January 1, 1981 and June 30, 2015. I construct the sample by distinguishing between whether the debt issuer was backed by a private equity or venture capital investors on its IPO and construct two time period samples, the focused [IPO+0, IPO+6] sampling period and the full [IPO+0, IPO+12] sampling period. I test my hypotheses by creating a private equity dummy variable (PE_DUMt) that takes the value 1 if the debt issuing company was backed by a private equity investor on its IPO and zero otherwise. I then run a series of multivariate analyses studying the relationship of private equity ownership and different credit metrics of the bonds and loans (credit ratings, bond yield spread and loan spread) as well as study the investment and payout policy changes (capital expenditure, dividends and share repurchases) over the three years following a bond or loan issuance. My analysis yields three main results; first, bond yield spreads (loan spreads) for European PE-backed companies are on average 93 pp (70 pp) higher when comparing to the general set of other IPO companies over the first six years after their IPO. Second, European private equity-sponsored firms are rated on average two notches lower than their non-sponsor counterparts by Moody’s dur-ing the first six years after the company has been listed. Finally, private equity-backed companies invest less and pay lower amounts of dividends over the three-year period following a debt issuance relative to the size of the firms, when compared to the non-PE-sponsored firms. When contrasting my results to a similar US-based study of Huang et al. (2016), I find that debt investors to view European private equity ownership somewhat differently from the North American PE ownership. However, I observe no evidence of exploitative governance structures in PE-backed companies and suggest that the reputation effect plays a vital role in ensuring that bondholder friendly governance structures are implemented in PE portfolio companies.
Betonirakenteisten kerrostalojen ulkovaipparakenteiden korjaustapojen valinta ja optimointi
(1996) Aalto, Jari
Helsinki University of Technology | Master's thesis