Corporate Governance and Value Creation: Evidence from Private Equity
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
HEC Paris - Strategy & Business Policy
Ludwig Maximilian University of Munich
McKinsey & Company, Inc.
February 17, 2010
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.
Number of Pages in PDF File: 44
Keywords: leveraged buyouts (LBO), management buyouts (MBO), active ownership, activism, management turnover, alpha
JEL Classification: G31, G32, G34, G23, G24
Date posted: January 8, 2009 ; Last revised: August 17, 2011