Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance
42 Pages Posted: 13 Aug 2008 Last revised: 24 Sep 2009
Date Written: 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.
Keywords: private equity, corporate governance, contracts, trading, public corporations, subprime
JEL Classification: G34, K20, K22
Suggested Citation: Suggested Citation