Are Private Equity Investors Corporate Raiders or Corporate Doctors? The Influence of Geography on the Success of Private Equity Investments in Listed Equity

Abstract

This paper analyses short-term wealth effects and long-term wealth effects of private equity investments in target companies already listed on a stock exchange and examines the importance of geography on stock returns and accounting returns. In general, risk-adjusted short-term and long-term stock returns of target companies are positive. Moreover, target companies realize higher announcement returns and larger improvements in accounting returns when the private equity investor and the target are from the same country. These observations support the hypothesis that private equity investors are corporate doctors (and are also perceived as doctors by the market).

Keywords: Private equity, event study, accounting returns, stock returns

JEL Classification: G14, G24