Cross-Border LBOs, Human Capital, and Proximity : Value Addition through Monitoring in Private Equity Investments

We show that cross-border LBO investments involving U.S. rather than non-U.S. private equity (PE) investors are more likely to have a successful exit (IPO or acquisition). Exogenous increases in effective proximity following the signing of “Open-Sky” agreements between the U.S. and target firms' home countries increases the propensity of U.S. PE firms to invest in these firms and increases value addition by these investors. We show such increases in value addition by U.S. PE investors following proximity increases are at least partially due to better monitoring, facilitated by the more efficient allocation of experienced U.S. PE managers to cross-border deals