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

38 Pages Posted: 5 Aug 2019 Last revised: 5 Jun 2020

See all articles by Scott Hsu

Scott Hsu

University of Arkansas - Department of Finance

Tomas Jandik

University of Arkansas - Sam M. Walton College of Business

Juntai Lu

University of Arkansas - Sam M. Walton College of Business

Date Written: July 29, 2019

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

Suggested Citation

Hsu, Scott and Jandik, Tomas and Lu, Juntai, Managing with Private Equity Style: CEOs’ Prior Buyout Target Experiences and Corporate Policies (July 29, 2019). Available at SSRN: https://ssrn.com/abstract=3428621 or http://dx.doi.org/10.2139/ssrn.3428621

Scott Hsu (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

Tomas Jandik

University of Arkansas - Sam M. Walton College of Business ( email )

WCOB 302
Fayetteville, AR 72701
United States
479-575-6147 (Phone)

Juntai Lu

University of Arkansas - Sam M. Walton College of Business ( email )

Fayetteville, AR 72701
United States

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