Managing with Private Equity Style: CEOs’ Prior Buyout Target Experiences and Corporate Policies

Abstract

We examine the effects of public firm CEOs’ prior private equity (PE) target experiences on corporate policies. Based on difference-in-differences and propensity score matching analyses, public firm CEOs previously serving as CEOs in PE targets reduce investment by about 15 percent while enhancing patent values by over 7 percent after taking office compared to CEOs without such experiences. The effects are stronger if these CEOs (1) worked in targets invested by more reputable PE firms, (2) worked in targets invested by PE firms known for implementing significant capital investment cuts or for enhancing innovation, and (3) have more recent and longer PE target experiences. These CEOs also cut employment, enhance firm value, and increase leverage.

Keywords: Private equity, CEO Work Experiences, Corporate Policy, Operating Performance

JEL Classification: G32, G40