Corporate Governance and Value Creation: Evidence from Private Equity

50 Pages Posted: 8 Jan 2009 Last revised: 30 Nov 2018

See all articles by Viral V. Acharya

Viral V. Acharya

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Oliver Gottschalg

HEC Paris - Strategy & Business Policy

Moritz Hahn

Ludwig Maximilian University of Munich (LMU)

Conor Kehoe

McKinsey & Company, Inc.

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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 Acharya, Viral V. and Gottschalg, Oliver and Hahn, Moritz and Kehoe, Conor, Corporate Governance and Value Creation: Evidence from Private Equity (February 17, 2010). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 232/2009, 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 (NYU) - Leonard N. Stern School of Business ( email )

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New York University (NYU) - Department of Finance ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Oliver Gottschalg

HEC Paris - Strategy & Business Policy ( email )

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Moritz Hahn

Ludwig Maximilian University of Munich (LMU) ( email )

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Germany
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Conor Kehoe

McKinsey & Company, Inc. ( email )

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