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

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Date Written: 2009

Abstract

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

Masulis, Ronald W. and Thomas, Randall S., Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance (2009). 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. Available at SSRN: https://ssrn.com/abstract=1207858

Ronald W. Masulis (Contact Author)

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Randall S. Thomas

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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