Abstract

http://ssrn.com/abstract=1354519
 
 

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Corporate Governance and Value Creation: Evidence from Private Equity


Viral V. Acharya


New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Olivier Gottschalg


HEC Paris - Strategy & Business Policy

Moritz Hahn


Ludwig-Maximilians-Universität München

Conor Kehoe


McKinsey & Company, Inc.

February 2009

NYU Working Paper No. 2451/27878

Abstract:     
We examine deal-level data on private equity transactions in the UK initiated during the period 1996 to 2004 by mature private equity houses. We un-lever the deal-level equity return and adjust for (un-levered) return to quoted peers to extract a measure of "alpha" or abnormal performance of the deal. The alpha is significantly positive on average and robust during sector downturns. In the cross-section of deals, higher alpha is related to greater improvement in EBITDA to Sales ratio (margin) and greater growth in EBITDA multiple during the private phase, relative to that of quoted peers. In particular, deals with higher alpha either grow their margins more substantially, and/or grow multiples more substantially, whilst expanding their revenues only in line with the sector. Based on interviews with general partners involved with the deals, we find that deals with higher alpha and higher margin growth are associated with greater intensity of engagement of private equity houses during the early phase of the deal, employment of value-creation initiatives for productivity and organic growth, and complementing top management with external support. Overall, our results are consistent with mature private equity houses creating value for portfolio companies through active ownership and governance.

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Date posted: March 9, 2009 ; Last revised: September 10, 2013

Suggested Citation

Acharya, Viral V. and Gottschalg, Olivier and Hahn, Moritz and Kehoe, Conor, Corporate Governance and Value Creation: Evidence from Private Equity (February 2009). NYU Working Paper No. 2451/27878. Available at SSRN: http://ssrn.com/abstract=1354519

Contact Information

Viral V. Acharya (Contact Author)
New York University - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
HOME PAGE: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/~vacharya.htm
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Olivier Gottschalg
HEC Paris (Groupe HEC) - Strategy & Business Policy ( email )
Jouy-en-Josas Cedex, 78351
France

Moritz Hahn
Ludwig-Maximilians-Universität München ( email )
Ludwigstrasse 28 / 012
Munich, 80333
Germany
+49 (0)89 2108 6935 (Phone)
Conor Kehoe
McKinsey & Company, Inc. ( email )
1 Jermyn Street
London, SW1Y 4UH
United Kingdom
+44 (0)20 7961 5988 (Phone)
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