Foreign versus domestic buy-outs: evidence from returns of private equity

Abstract

This study investigates the differences between foreign- and domestic private equity investments and identifies that factors explain these differences. We used a unique dataset acquired from Bloomberg, analyzing 700 deals from the timeframe 1981-2019. Further, we analyzed which factors influence the return and which only impacts the choice of country to invest. We found evidence that foreign investments yield higher returns than domestic investments because of the inclusion of a risk premium and that bilateral trust, taxes and specialized investors are the main drivers. Furthermore, we did not find any statistical significance for geographical or cultural distance, which was believed to be some of the most important drivers of return for foreign investments after conducting literature review. Lastly, we find evidence that during recessions holding period and strong governments are key factors for higher returns.