Private Equity Funds and Firm Products

36 Pages Posted: 4 Feb 2018 Last revised: 15 May 2020

See all articles by Wenhao Yang

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance

Feng Zhang

Southern Methodist University (SMU) - Finance Department

Xiao Zhong

University of Utah, David Eccles School of Business, Department of Finance, Students

Date Written: January 1, 2018

Abstract

We examine changes to the products of public target firms after LBO using a novel dataset of firm products. We find that private equity funds cut target firms’ new products after LBO, especially when there is less room to improve the target firm’s performance through financial engineering. Additional tests suggest that PE funds cut target firms’ investment on product innovation mainly to boost their short-term performance at the cost of long-term performance. We find mixed evidence regarding the hypothesis that PE funds cut target firms’ new products to undo their overinvestment on product innovation before LBO.

Keywords: private equity funds, new products, leveraged buyouts

JEL Classification: G34, G23, L11

Suggested Citation

Yang, Wenhao and Zhang, Feng and Zhong, Xiao, Private Equity Funds and Firm Products (January 1, 2018). Available at SSRN: https://ssrn.com/abstract=3110824 or http://dx.doi.org/10.2139/ssrn.3110824

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

Feng Zhang (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

HOME PAGE: http://https://sites.google.com/view/fengzhangfin

Xiao Zhong

University of Utah, David Eccles School of Business, Department of Finance, Students ( email )

Salt Lake City, UT
United States

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