working papers

Security Design for Private Acquisitions

With Mark Jansen and Thomas Noe

Informal Abstract: Theoretical paper showing that if there is information asymmetry (the seller knows more about what he is selling) and optimism (the buyer thinks she will add value; they both agree on that but buyer thinks she will add more than what the seller thinks), then asking the seller to provide a loan to the buyer is a great idea. Much better than asking the seller to keep a stake in the company; even when the buyer is not financially constrained. However, if the buyer is too optimistic in her ability to add value, she will not ask for that loan, and will pay with cash only.

Formal Abstract: We propose a security design model in which a potential acquirer approaches a firm with a value-add plan. The target has a single owner, who possesses private information: he knows whether his firm is compatible with the plan, or not. The seller agrees the acquirer will add value but not as much as what the acquirer expects. Although the acquirer can choose any monotone limited liability security to offer along with cash, we show that, under general conditions, if a security is employed, it takes the form of non-recourse junior debt provided by the seller.

Employee Views of Leveraged Buy-Out Transactions

With Marie Lambert, Nicolas Moreno, Alexandre Scivoletto

Abstract: A large sample of employee reviews shows a decline in satisfaction after a Leveraged Buy-Out (LBO), but with significant heterogeneity. The key driver is the previous ownership structure. For Private-to-Private transactions, dissatisfaction is concentrated in non-management employees and comes mostly from how management treats them. In Public-to-Private transactions, the dissatisfaction is stronger, multi-faceted, and present for all employees, including management. Industry and Private Equity sponsor fixed effects are significant, but second order. Other ownership changes (M&A, IPO) trigger less dissatisfaction.

Brexit & COVID-19 Death Rates

With Betty H.T. Wu

Abstract: We uncover a striking relationship between the 2016 Brexit vote and COVID-19 death, infection, and vaccination rates in England. Districts that voted most heavily in favor of remaining in the European Union (top quintile) have a death rate that is one third lower, an infection rate that is a quarter lower, and a vaccination rate that is higher than Districts with the fewest Remainers (bottom quintile). The effect is stronger after the first wave, once protective measures are known and available. Our results suggest a need for designing incentive schemes that account for different cultures and belief systems. Science prowess – such as finding an effective vaccine – may not be sufficient to solve crises.

Data to replicate results are available here.