Private Equity and Corporate Governance: Do LBOs Have More Effective Boards?

34 Pages Posted: 18 Mar 2008

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group

Date Written: March 2008


This paper looks at how board size and composition change when a public company is taken private, in particular by a private equity group. We construct a new data set which follows the board changes of all public to private transactions that took place in the UK between 1998 and 2003. While the main focus of the paper is on the LBOs, we use MBOs as control group. Looking at the changes allow us to study whether private equity companies are actively involved in the restructuring of the company. Moreover, since it is often argued that private equity companies are better able to manage and restructure a firm, by looking at how and when they change the board we can learn more about what should be the optimal features of the board. We find that when a company goes private: i) board size and the presence of outside directors are drastically reduced, ii) in LBOs, outside directors are replaced by private equity members whereas in MBOs, outside directors disappear and only management is left, iii) private equity board members are most active in complex and challenging transactions, iv) companies with more need for supervision or advice have larger presence of private equity sponsors in the board after the LBO, v) presence of LBO sponsors on the board may depend on the style or preferences of the private equity firm, vi) private equity investors remain actively engaged with their portfolio businesses in years after the transaction, and vii) post-private equity transaction and during restructuring process, CEO turnover is high for firms backed by private equity funds.

Keywords: Boards of Directors, Private Equity, Leveraged Buyouts, Management Buyouts, Corporate Governance

JEL Classification: G30, G34

Suggested Citation

Cornelli, Francesca and Karakaş, Oğuzhan, Private Equity and Corporate Governance: Do LBOs Have More Effective Boards? (March 2008). ; AFA 2009 San Francisco Meetings Paper. Available at SSRN: or

Francesca Cornelli (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7262 5050 x3225 (Phone)
+44 20 7724 3317 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group ( email )

University of Cambridge
Trumpington St.
Cambridge, CB2 1AG
United Kingdom

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