NYU Stern: Red States Better for Buy-Outs

Last Updated Oct 28, 2008 11:31 AM EDT

  • RealClear Electoral Map, October 14, 2008.The Find: If you're acquiring a company headquartered in a state that voted Republican from 1988 to 2000, recent research predicts the buyout will enjoy an eight percent performance boost compared to a target company headquartered in a state that voted Democratic.
  • The Source: New research from NYU Stern Assistant Professor of Management Aviad Pe'er and Oliver Gottschalg of HEC School of Management in Paris.
The Takeaway: Pe'er and Gottschalg based their study on data from 5,870 U.S. buyouts by private equity firms made between 1980 and 2000. Their conclusions are set to appear in the November 2008 issue of Harvard Business Review, but some preview statistics are available:
  • A company headquartered in a red state is ten percent more likely to undergo a buyout than an otherwise identical company based in a blue state.
  • The average performance of buyouts in red states is 8 percent higher than in blue states.
  • When the political views of a state shifted toward Republican dominance, buyout activity increased approximately 18 percent and the likelihood of a successful buyout outcome increased 14 percent.
The explanation for the discrepancy can be found in a close read of the Republican platform, which, according to the researchers, "is more aligned with the mechanisms by which buyouts create value to shareholders." Democratic policy, meanwhile, likely impedes value creation "by increasing costs associated with including additional stakeholders." Republicans, it seems, have more of a stomach for lay-offs and aggressive restructuring. The research may also go some ways towards explaining the strong CEO preference for McCain.

For those interested in the details, the full research paper is available here, or read more commentary on the study at the HBR Editor's Blog.

The Question: Do you agree or disagree with the paper's characterization of the political parties' different postures towards business?

(Image of 2008 presidential election map from Real Clear Politics by New England Secession, CC 2.0)

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    Jessica lives in London where she works as a freelance writer with interests in green business and tech, management, and marketing.