Do Politics Shape Buyout Performance?


Harvard Business Review

November 2008, vol. 86, n°11, pp.26-27

Departments: Strategy & Business Policy, GREGHEC (CNRS)

This paper explores the relationship between dominant local political views and the volume and performance of leveraged buyout investments. We analyze a sample of 10,746 buyout investments in 4,633 distinct target companies made by 2,396 different funds managed by 1,300 different PE Firms from 1980 to 2003 and find strong support for the hypothesis that 'Republican' political views are positively related to both the volume of buyout activity and different measures of performance for these buyouts. Furthermore we find that situations in which the dominant political view recently shifted from 'Republican' to 'Democratic' lead to particularly low levels of activity and performance. Similarly, in cases in which the dominant political shifted from 'Democratic' to 'Republican' shortly after the focal point in time, we observe a particularly high level of activity and performance.