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U.S. Private Equity Investments in India

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Abstract:

India’s economic growth over the past decade has attracted unprecedented foreign direct investment (FDI). In particular, India has experienced significant private equity activity, with U.S. private equity firms playing a prominent role in the growth of FDI into India. However, U.S. private equity firms in India behave in patterns that are distinct from their investments in developed countries. These patterns depend on India’s unique investment risks and opportunities. India’s 8% growth rate and well-performing capital markets provide substantial rewards for U.S. private equity firms. At the same time, the traditional promoter-controlled (i.e. family-run) structure of many Indian firms presents significant challenges for private equity investors.

This paper explores the structure of U.S. private equity investments in Indian companies to determine how these firms address the corporate governance challenges prevalent in India. A study of transaction structures and contracts related to U.S. private equity investments in Indian firms demonstrates that in an emerging economy such as India, these firms act more like venture capitalists. Rather than engaging in change of control and buyout transactions, U.S. private equity firms primarily engage in minority investments in Indian firms. Accordingly, investors tend to focus their behavior and strategies on two major issues: (i) investor control rights and (ii) exit strategies. This article contends that the strategies used by U.S. private equity firms highlight their concerns regarding the corporate governance issues prevalent in promoter-controlled firms. The structure of private equity investments in Indian firms reveals that transparency, financial governance and accounting, and separation of ownership and management remain key issues that investors seek to address from a corporate governance standpoint.
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Name: The Law and Society Association
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http://www.lawandsociety.org


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URL: http://citation.allacademic.com/meta/p496053_index.html
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MLA Citation:

Afsharipour, Afra. "U.S. Private Equity Investments in India" Paper presented at the annual meeting of the The Law and Society Association, Westin St. Francis Hotel, San Francisco, CA, May 30, 2011 <Not Available>. 2014-11-25 <http://citation.allacademic.com/meta/p496053_index.html>

APA Citation:

Afsharipour, A. , 2011-05-30 "U.S. Private Equity Investments in India" Paper presented at the annual meeting of the The Law and Society Association, Westin St. Francis Hotel, San Francisco, CA <Not Available>. 2014-11-25 from http://citation.allacademic.com/meta/p496053_index.html

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: India’s economic growth over the past decade has attracted unprecedented foreign direct investment (FDI). In particular, India has experienced significant private equity activity, with U.S. private equity firms playing a prominent role in the growth of FDI into India. However, U.S. private equity firms in India behave in patterns that are distinct from their investments in developed countries. These patterns depend on India’s unique investment risks and opportunities. India’s 8% growth rate and well-performing capital markets provide substantial rewards for U.S. private equity firms. At the same time, the traditional promoter-controlled (i.e. family-run) structure of many Indian firms presents significant challenges for private equity investors.

This paper explores the structure of U.S. private equity investments in Indian companies to determine how these firms address the corporate governance challenges prevalent in India. A study of transaction structures and contracts related to U.S. private equity investments in Indian firms demonstrates that in an emerging economy such as India, these firms act more like venture capitalists. Rather than engaging in change of control and buyout transactions, U.S. private equity firms primarily engage in minority investments in Indian firms. Accordingly, investors tend to focus their behavior and strategies on two major issues: (i) investor control rights and (ii) exit strategies. This article contends that the strategies used by U.S. private equity firms highlight their concerns regarding the corporate governance issues prevalent in promoter-controlled firms. The structure of private equity investments in Indian firms reveals that transparency, financial governance and accounting, and separation of ownership and management remain key issues that investors seek to address from a corporate governance standpoint.


Similar Titles:
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Determinants of Sovereign Wealth Fund Investment in Private Equity


 
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