Legal Protection, Corruption and Private Equity Returns in Asia

36 Pages Posted: 1 Apr 2011

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Grant Fleming

Continuity Capital Partners

Sofia Johan

Florida Atlantic University - Finance; University of Aberdeen; Tilburg Law and Economics Center (TILEC)

Mai Takeuchi

Wilshire Private Markets

Date Written: September 29, 2010


This paper examines how private equity returns in Asia are related to levels of legal protection and corruption. We utilize a unique data set comprising over 750 returns to private equity transactions across 20 developing and developed countries in Asia. The data indicate that legal protections are an important determinant of private equity returns in Asia, but also that private equity managers are able to mitigate the potential for corruption. The quality of legal system (including legal protections) is positively related to returns. Inefficient legal protections negatively impact transaction structures and economic certainty when exiting investments. We also find that private equity managers, irrespective of the quality of legal system they are operating within, can mitigate the potential impact of corruption. Private equity returns are higher in countries with higher levels of corruption, controlling for legal systems. This finding is consistent with the view that private equity managers bring about organizational change to alleviate the costs of corruption. Our findings are robust to inclusion of controls for Hofstede cultural variables, economic conditions, and transaction specific characteristics, as well as consideration of econometric sample selection methods for unexited investments.

Keywords: Corruption, Law and Finance, Buyouts, Returns

JEL Classification: G2, G3, K2, K4

Suggested Citation

Cumming, Douglas J. and Fleming, Grant Alan and Johan, Sofia A. and Takeuchi, Mai, Legal Protection, Corruption and Private Equity Returns in Asia (September 29, 2010). Journal of Business Ethics, Forthcoming, Available at SSRN:

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States


Grant Alan Fleming

Continuity Capital Partners ( email )

GPO Box 314
Canberra, Australian Capital Territory 2601

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

Mai Takeuchi

Wilshire Private Markets ( email )

United States

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