Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards

47 Pages Posted: 25 Feb 2018  

Ranko Jelic

University of Sussex - School of Business Management and Economics

Dan Zhou

University of Reading - Henley Business School

Mike Wright

Imperial College London

Date Written: February 14, 2018

Abstract

We examine the impact of private equity (PE) directors and their human capital on operating performance in a unique hand collected sample of 200 secondary management buyouts (SMBOs) during 2000-2015. We show that PE directors’ human capital tends to play statistically and economically important role in performance. Financial (rather than operational) experience of PE directors in acquiring PE firms tends to have a substantial impact on post-SMBO profitability while high level business education is especially important in post-SMBO growth performance enhancement. Complementary expertise, provided by directors in buying and selling PE firms, plays an important role only in post-SMBO growth improvements. Overall, our results provide evidence that governance benefits of the buyout model tend not to be exhausted in the primary buyout stage but the effects in the secondary buyout phase depend on the nature of PE directors’ human capital resource, notably in respect of the balance between board monitoring and advisory roles. Our study therefore adds to growing evidence on how ownership and life-cycle nature of firms affect sustainability of boards fulfilling their roles. The results are robust to sample selection bias, different types of PE firms and different measures of human capital.

Keywords: Buyouts, Boards, Private Equity, Human Capital

JEL Classification: G24, G32, G34

Suggested Citation

Jelic, Ranko and Zhou, Dan and Wright, Mike, Sustaining the Buyout Governance Model: Inside Secondary Management Buyout Boards (February 14, 2018). Available at SSRN: https://ssrn.com/abstract=3123644 or http://dx.doi.org/10.2139/ssrn.3123644

Ranko Jelic (Contact Author)

University of Sussex - School of Business Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom
+441273872597 (Phone)

Dan Zhou

University of Reading - Henley Business School ( email )

Greenlands
Reading, Henley on Thames RG6 6AH
United Kingdom

Mike Wright

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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