Grant Fleming

Style drift in private equity

We introduce the concept of style drift to private equity investment. We present theory and evidence pertaining to style drifts in terms of a fund managers stated focus on particular stages of entrepreneurial development. We develop a model that derives conditions under which style drifts are less likely among younger fund managers. We also show ways in which changes in market conditions can affect style drifts, and differences for funds committed to early-stage investments compared to funds committed to late-stage investments. We find some evidence of a positive relation between style drifting and investment performance.

Corporate Relocation in Venture Capital Finance

This paper introduces an analysis of international relocation decisions of venture capital (VC)–backed companies. Relocations to the United States are motivated by economic conditions as well as an improvement in the laws of the country in which the entrepreneurial firm is based. Relocations to the United States yield much greater returns to Asia–Pacific VCs than investing in companies already based in the United States at the time of VC investment. Further, more experienced Asia–Pacific VCs have greater success with their investee relocations to the United States, and these relocations yield higher returns relative to staying in their country of origin.

Collusion and Price Wars in the Australian Coal Industry during the Late Nineteenth Century

This essay examines the behaviour of coal mining companies in late nineteenth-century Australia in light of recent research on strategic firm behaviour. The Northern Collieries vend explored a number of institutional arrangements designed to increase the amount of public information and raise the costs of cheating. Output apportioning and profit redistribution schemes were employed to increase the costs to any individual firm of over-production. Wage contracts between the coal mining union and collieries included a sliding-scale component linked to the cartel price; the union was an important monitoring agent increasing the amount of public information on firm behaviour. Periodic price wars involved chiselling on the cartel price and bargaining behaviour to influence future agreements.

Debt Investments in Private Firms: Legal Institutions and Investment Performance in 25 Countries

The authors document the types of private debt investments made by fund managers into private firms across 25 countries from 2001–2010. Returns to private debt investments depend on lender (fund manager) characteristics, particularly portfolio size per manager, thus highlighting the role of time allocation for due diligence and monitoring. Also, investment returns are significantly related to borrower (firm-specific) risk. By contrast, market conditions, such as TED spreads, and country-level legal factors, such as creditor rights, are insignificantly or, at most, weakly related to returns. Market and legal conditions are nevertheless significantly related to private debt investment volumes and location.

Monetary thought and the analysis of price stability in early twentieth century New Zealand

We consider the state of monetary thought in New Zealand and the international transmission of monetary ideas to New Zealand with reference to the report and minutes of evidence of the Royal Commission on the Cost of Living in New Zealand (1912). The paper recovers several New Zealanders as genuine theorists of political economy and of monetary thought in particular. In their disquisitions the political economists expounded, with varying degrees of subtlety, older classical and contemporary neoclassical ideas. Right, Segar and McIlraith held monetary theories of the price level and proceeded beyond the classical cost of production theory of the natural value of money by exploring how and why a change in the price level follows a change in the quantity of money and credit. They did not understand all the intricacies of the Australasian sterling exchange standard, but what they had to say on price level adjustments in an open economy was perfectly coherent and defensible.

Locating Australian Corporate Memory

This research note reports on the quantity of business records available in Australia as indicated by a recent survey of the top one hundred firms operating during the twentieth century. The archival work was undertaken as part of a large study investigating aspects of corporate leadership in Australia, conducted Jointly at the Australian National University and the University of Melbourne. We found that the surviving records of Australian businesses cover a wide selection of firm types, and that the comprehensiveness of many archives places business history on a sound foundation for the future.

Law and Corruption in Venture Capital and Private Equity

This chapter summarizes recent research on the role of law, culture and corruption on venture capital (VC) fund structure, governance and performance. Evidence from studies that involve a multitude of countries is primarily considered. The evidence across most studies is broadly consistent with the view that legal protection enables superior compensation arrangements in limited partnerships where the interests of general partners and limited partners is aligned. More corrupt countries, by contrast, have less efficient compensation structures. The evidence further indicates that better legal systems facilitate contract performance. Finally, the evidence show countries with higher levels of corruption have higher levels of returns, suggesting that fund managers are able to alleviate the effects of corruption in investee companies. In our concluding comments we discuss venture capital around the world and its future development in relation to law, corruption and culture.

Financial intermediaries and the design of loan contracts within the Australasian pastoral sector before the Second World War

Simon Ville and Grant Fleming , Financial intermediaries and the design of loan contracts within the Australasian pastoral sector before the Second World War This paper examines the pooling and separating contracts designed by Australasian financial intermediaries in the late nineteenth and early twentieth centuries. We show that, after an initial screening process, these agents altered interest rates and collateral requirements to separate out risk types to reveal additional information on borrowers. In multi-period contracts, agents opted for flexible contract structures which permitted changes in individual or community-wide circumstances.

The Big End of Town: Financing Corporate Strategies

The financing decisions for our corporate leaders were influenced over time by a range of macroeconomic and firm-specific factors (for example, the institutional structure of finance markets, the size of the firm, current sources of finance, ownership structure). The availability of finance from private and public markets affects the cost of capital for the firm, and dictates the extent to which it must fund growth from internally generated sources. Financial regulations, tax regimes, the openness of the economy to international capital flows, and investor sentiment (to name a few), all influence the nature and structure of the domestic finance market. At the firm-specific level, the financing decision involves judging whether to retain earnings for growth, or to raise new capital from debt or equity. Alternatively, firms might draw on networks of relationships to fund expansion and growth. If external sources are chosen, management is required to address more complex questions associated with the maturity and seniority of finance, and the nature of future payments (for example, fixed or floating interest rates, the currency of denomination, and dividend payouts). In this chapter we examine the sources of finance utilised by Australias corporate leaders. We begin by describing the sources of finance available to firms: retained earnings, networks, equity and debt. We then examine how each of these sources were used to finance corporate strategies and sustain competitive advantages. We conclude with an examination of the rise of financing operations in the corporate head office of two corporate leaders: Dunlop and BHP.