Simona Zambelli

Due Diligence and Investee Performance

Our study provides new evidence on due diligence (DD) and its impact on investee performance. We estimate the economic value of due diligence (DD) in the context of private equity (PE) by investigating the relationship between DD and investee performance, while controlling for endogeneity. With the adoption of a novel and unique dataset, we find evidence highly consistent with the view that a thorough DD is associated with improved future investee performance. We also distinguish the role of different types of DD and show that the DD carried out internally by fund managers has a more pronounced impact on performance. Instead, the DD mainly performed by external agents, such as consultants, lawyers and accountants, gives rise to puzzling results and imperfect matching, highlighting the existence of apparent agency problems.

‘If the Facts Don't Fit the Theory … ’: The Security Design Puzzle in Venture Finance

When confronting theory with evidence, divergent results surface with reference to the optimal securities that should be adopted in venture capital (VC) finance. The vast majority of the theoretical models on VC consistently predict that convertible securities, especially in the form of convertible preferred stocks, represent the optimal form of finance. While the theoretical literature seems to be supported by empirical studies in the US, the evidence outside the US shows the opposite results. Puzzling patterns emerge, especially when comparing the evidence from the US, Canada and Europe, and an intensive academic debate is under way. The evidence becomes even more challenging when considering the contrasting financing behaviour of US venture capitalists (VCs) investing in Canada. It has been documented that US VCs investing in Canada adopt a wide range of securities other than convertible stocks. If convertible securities truly represent the optimal form of VC finance, why would US VCs use different types of securities when investing in Canada? At present, researchers are still arguing about which factors would have the most significant impact on explaining the different financing behaviour of VCs around the world. The purpose of this paper is to shed some light on the ongoing international debate on the optimal security design and contracting behaviour in venture finance. With this review, the authors intend to contribute to the VC literature by identifying current trends, explanations and determinants underlying the puzzling empirical evidence on the financing structure adopted by VCs around the world.

The Alchemy of Securitization. Evolution and Perspectives

The term securitization is used to represent the process whereby assets are pooled together, with their cash flows, and converted into negotiable securities to be placed into the market (Tasca and Zambelli 2005) or to be used as collateral in refinancing transactions with Central Banks or with market participants. Securitization is aimed at transforming illiquid assets into securities. These securities are backed or secured by the original underlying assets and are generally defined as Asset Baked Securities (ABS). Theoretically, any financial assets producing cash flows (receivables, residential and commercial mortgages, credit card receivables, and other consumer and commercial loans) can be securitized (see, e.g., Buchanan 2016, Buchanan 2017; Kara et al. 2016; Malekan 2014; Lipson 2012). The main purpose of the chapter is to analyze the basic characteristics and the market structure of traditional securitization, especially with reference to the Italian market.

The Cost Efficiency of Water Utilities: When Does Public Ownership Matter?

ABSTRACT This study explores the impact of different ownership types on the efficiency of water utilities. Theories and evidence have shown a puzzling relationship between ownership and performance. Moreover, relatively recent contributions (Andrews et al. 2011) have argued that this relationship can be further convoluted by the effect of organisational and environmental variables. The current study aims to contribute to this literature by providing some empirical evidence for Italy, by proposing a methodology that combines non-parametric efficiency estimation and cluster analysis. Our main findings indicate that privately owned utilities indirectly controlled by a public organisation reach the highest level of efficiency but, when size and geographical location enter the analysis, ownership has a stronger significant effect on efficiency, and mixed utilities gain higher cost efficiency. Therefore, we may conclude that administrative reforms about privatisation and the institutional setting should consider a set of variables that characterise each individual organisation.

Defining Government Performance Expectations: Insights from the US and UK Financial Bailout Proposals Workgroup II: Performance in the Public Sector

The economic and financial crisis of 2008 has raised some particularly challenging issues regarding assessing the performance of proposed financial institution bailout solutions. The need for quick action to avoid financial disaster often precluded a full airing of the possible advantages and disadvantages associated with the accountability and performance indicator mechanisms put in place. Now, a vigorous debate is occurring over performance indicators related to the effectiveness, efficiency and equity aspects of the solutions that have been implemented both in the U.S. and Europe. The United States major bailout proposal was the Troubled Assets Relief Program (TARP) overseen by the Office of Financial Stability in the US Department of Treasury which has taken major ownership positions in US banks. The British bailout plan called the Bank Recapitalisation Scheme (BRS) is being directed by HM Treasury and the United Kingdom Financial institutions, Corp. which has also taken equity positions in major UK banks. These similarities and differences form the backdrop for the empirical case studies. The particular nature of these government programs make them ideal candidates for an extreme type case analysis in the characterizing the fight over defining performance. Not surprisingly, a host of academics, private financial institutions, government agencies and even intergovernmental governing bodies such as the IMF are airing their respective performance definitions. The competition between these bodies will serve as the empirical basis for assessing the arguments and motivations over how to define performance in the context of the bank bailouts. These case studies will be analyzed in the performance regime and competing values conceptual frameworks as initially brought together in Talbot (2008). The performance regime frame will help assess the institutional forces who are attempting to exert influence over indicators. The competing values frame advances the notion that there are four major types of models by which social relationships are constructed and the form through the regime influences impact indicators and performance definitions. The major new contribution presented here will be in using these case studies to define the types of variables and factors that drive different types of private and public agents in constructing the definition of performance as well as advancing this combination of the performance regime and competing values framework. It is felt that these financial bailouts provide a rich set of data upon which new insights and the advancement of knowledge can be constructed. The United States and United Kingdom models represent important cases where large scale financial bailouts have occurred in two countries that have similar business cultures and yet there remain important differences in their approaches.