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Corporate Governance and Value Creation: Evidence from Private Equity

44 Pages Posted: 8 Jan 2009 Last revised: 17 Aug 2011

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

Oliver Gottschalg

HEC Paris - Strategy & Business Policy

Moritz Hahn

Ludwig Maximilian University of Munich

Conor Kehoe

McKinsey & Company, Inc.

Multiple version iconThere are 3 versions of this paper

Date Written: February 17, 2010

Abstract

We examine deal-level data from 395 private equity transactions in Western Europe initiated by large private equity houses during the period 1991 to 2007. We un-lever the deal-level equity return and adjust for un-levered return to quoted peers to extract a measure of abnormal performance of the deal. The abnormal performance is significantly positive on average, and stays positive in periods with low sector returns. In the cross-section of deals, higher abnormal performance is related to greater growth in sales and greater improvement in EBITDA to sales ratio (margin) during the private phase, relative to those of quoted peers. Finally, we show that general partners with an operational background (ex-consultants or ex-industry-managers) generate significantly higher outperformance in organic deals that focus exclusively on internal value creation programs; in contrast, general partners with a background in finance (ex-bankers or ex-accountants) generate higher outperformance in deals with significant M&A events. We interpret these findings as evidence, on average, of positive, but heterogeneous skills at deal partner level in private equity transactions.

Keywords: leveraged buyouts (LBO), management buyouts (MBO), active ownership, activism, management turnover, alpha

JEL Classification: G31, G32, G34, G23, G24

Suggested Citation

Acharya, Viral V. and Gottschalg, Oliver and Hahn, Moritz and Kehoe, Conor, Corporate Governance and Value Creation: Evidence from Private Equity (February 17, 2010). Available at SSRN: https://ssrn.com/abstract=1324016 or http://dx.doi.org/10.2139/ssrn.1324016

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

Oliver Gottschalg

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Moritz Hahn

Ludwig Maximilian University of Munich ( 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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