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This paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyze these effects for the German market which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.66% around the event day (t-1 to t0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the target’s tax liabilities and degree of undervaluation and negatively related to the target’s leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary moni¬toring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced. We find no evidence that PE investors ad¬versely affect employment or wages in target companies.
Abstract
ECONOMIC CONSEQUENCES OF PRIVATE EQUITY INVESTMENTS ON THE GERMAN STOCK MARKET
Achleitner, Ann-Kristin; Andres, Christian; Betzer, André; Weir, CharlieThis paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyze these effects for the German market which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.66% around the event day (t-1 to t0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the target’s tax liabilities and degree of undervaluation and negatively related to the target’s leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary moni¬toring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced. We find no evidence that PE investors ad¬versely affect employment or wages in target companies.