Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance
Ronald W. Masulis
University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)
Randall S. Thomas
Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)
University of Chicago Law Review, Vol. 76, p. 219, 2009
Vanderbilt Law and Economics Research Paper No. 08-20
ECGI - Law Working Paper No. 113/2008
ECGI - Finance Working Paper No. 253/2009
Private equity has reaped large rewards in recent years. We claim that one major reason for this success is due to the corporate governance advantages of private equity over the public corporation. We argue that the development of substantial derivative contracts and trading has significantly weakened the governance of public corporations and has created a need for financially sophisticated directors and much closer supervision of management. The private equity model delivers these benefits and allows corporations to be better governed, creating wealth gains for investors.
Number of Pages in PDF File: 42
Keywords: private equity, corporate governance, contracts, trading, public corporations, subprime
JEL Classification: G34, K20, K22
Date posted: August 13, 2008 ; Last revised: September 24, 2009
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