Transaction Structures in the Developing World: Evidence from Private Equity

Lerner and Schoar make available an interesting look at private equity financing. For instance, did you know that “in developing nations, the bulk of financings are private ones?” After examining 210 private equity transactions in developing countries, L&S report that in developing nations there is a much greater heterogeneity in private issuances. “The choice of security appears to be driven by the legal and economic circumstances of the nation and the private equity group. Investments in common law nations are structured similar to those in the U.S. […] By way of contrast, in nations where the rule of law is less established, private equity groups are likely to use common stock and own the majority of the firm’s equity if the investment encounters difficulties.” [ Annotation]

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