Corporate Governance and Independent Directors: Much Ado About Nothing? The Evidence Behind Private Equity Investment Performance

Abstract:     
Recourse to independent directors by private equity investors is not tied to performance increases. We draw this conclusion from analyzing a unique data set representative of the European context: all deals made by Italian closed-end funds from 1999 to 2003. Our study shows, in fact, that corporate governance does not impact the rate of return on a deal. Performance, instead, is driven by the characteristics of an initiative (exit-way, holding period and shareholding).

Further, we find that independent directors are involved in deals requiring greater skills and know-how. They tend to resign when performance is unsatisfactory. Moreover, these professionals improve deal performance if their commitment with the management company lasts throughout the deal and if there is a continual turnover of these directors.

Number of Pages in PDF File: 57

Keywords: performance puzzle, independent director, corporate governance, closed-end fund, private equity

JEL Classification: G34, G24, G11

working papers series