Team Stability and Performance: Evidence from Private Equity

55 Pages Posted: 11 May 2016 Last revised: 31 Oct 2017

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

Elena Simintzi

University of North Carolina Kenan-Flagler Business School; Centre for Economic Policy Research (CEPR)

Vikrant Vig

London Business School

Date Written: March 2017

Abstract

We examine the relation between team turnover and firm performance studying the private equity industry. Using a unique data set that tracks over time teams in 138 PE managers and their performance, we uncover a positive relation between turnover and fund performance. We propose and confirm in the data two channels that explain our findings: i) in the short-run, performance improves when bad performers are fired, ii) in the long-run, turnover helps teams to adapt and replenish their skills in response to shifting external demand. Our findings suggest that frictions coming from informational asymmetries may deter optimal turnover. These findings are surprising given the common belief among PE investors that team stability is key to long-term success.

Keywords: Human Capital, Turnover, Firm Performance

JEL Classification: G30, J24, J63, L20, M54

Suggested Citation

Cornelli, Francesca and Simintzi, Elena and Vig, Vikrant, Team Stability and Performance: Evidence from Private Equity (March 2017). 2nd Annual Financial Institutions, Regulation and Corporate Governance Conference. Available at SSRN: https://ssrn.com/abstract=2778213 or http://dx.doi.org/10.2139/ssrn.2778213

Francesca Cornelli (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7262 5050 x3225 (Phone)
+44 20 7724 3317 (Fax)

HOME PAGE: http://www.lbs.ac.uk/faculty/fcornelli/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Elena Simintzi

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building, Room 4200B
300 Kenan Center Drive
Chapel Hill, NC 27599-3490
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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