Matthew D. Cain

A Great Game: The Dynamics of State Competition and Litigation

We provide a multi-dimensional picture of jurisdictional competition for corporate litigation by examining merger litigation in a hand-collected sample of 1,117 takeovers from 2005-2011. We find that entrepreneurial plaintiffs’ attorneys drive this competition by bringing suits in jurisdictions which have previously awarded more favorable judgments and higher fees and by avoiding unfavorable jurisdictions. States with an apparent interest in attracting corporate litigation respond in-kind by adjusting judgments and awards to re-attract litigation. These states award higher attorneys’ fees and dismiss fewer cases when attorneys have been migrating to other jurisdictions. Our findings illuminate the dynamics and existence of jurisdictional competition for corporate litigation.

Broken Promises: The Role of Reputation in Private Equity Contracting and Strategic Default

This paper examines reputation and contract design in private equity acquisitions. We use a novel dataset of both completed and terminated private equity buyouts from 2004 through 2010. We find that private equity firms and targets rely on reputation to fill intentional contractual gaps. During the financial crisis private equity firms complete uneconomic, pre-agreed takeovers up to the point when estimated buyout losses rise to at least 7% of sponsors’ fund sizes, or

Intermediation in Private Equity: The Role of Placement Agents

200 to

CEO Personal Risk-Taking and Corporate Policies

400 million in nominal values. Target firms are willing to engage with defaulting private equity firms in future transactions but they penalize these firms by demanding significantly larger contract nonperformance penalties. We conclude that both reputation and explicit contracting can play important and interrelated roles in private equity and complex business relationships generally.To explore the relation between reputation and financial contracting, this paper examines the contracting structure in a novel dataset of 227 private equity buyouts of U.S. targets from 2004-2010. We note several provisions which allowed bidders to terminate contracts during the 2007-2008 financial crisis and show how contract structure is related to ex post litigation settlements. Consistent with economic theory, private equity firms were more likely to engage in contract nonperformance when default penalties were lower. Using details of target valuation changes and contract default penalties, we estimate the gains from backing out of these contracts. These gains approximate the values that bidders place on their reputations, which range from 5% to 9% of the sponsors’ fund sizes, or

Do Takeover Laws Matter? Evidence from Five Decades of Hostile Takeovers

180 million to

Information Production by Investment Banks: Evidence from Fairness Opinions

2.5 billion in nominal dollars. We also document the reputational damage resulting from this wave of terminations and find that default penalties are about 115% higher in 2009-2010 than during the pre-financial crisis period. Ultimately, the results demonstrate that in even the most complex transactions subject to financial contracting, reputation and collective group behavior play an essential role in the negotiating process.

Takeover Litigation in 2013

Intermediation in private equity involves illiquid investments, professional investors, and high information asymmetry. We use this unique setting to empirically evaluate theoretical predictions regarding intermediation. Using placement agents has become nearly ubiquitous, but agents are associated with significantly lower abnormal returns in venture and real estate funds, consistent with investor capture and influence peddling. However, returns are higher for buyout funds employing a top-tier agent and for first-time real estate and venture funds employing an agent, and are less volatile for agent-affiliated funds, consistent with a certification role. Our results suggest heterogeneous motives for intermediation in the private equity industry.