The More the Merrier? Diversity and Private Equity Performance

British Journal of Management, Forthcoming

53 Pages Posted: 29 Jan 2021

See all articles by Benjamin Hammer

Benjamin Hammer

Lancaster University - Department of Accounting and Finance; Lancaster University Leipzig

Silke Pettkus

HHL Leipzig Graduate School of Management

Denis Schweizer

Concordia University

Norbert Wuensche

affiliation not provided to SSRN

Date Written: December 10, 2020

Abstract

This paper explores how diversity among lead partner teams (LPTs) of private equity (PE) funds affects buyout performance. We argue that there is a trade-off between the “bright side” of diversity, i.e., improved decision-making due to a broader set of perspectives, and the “dark side”, i.e., deteriorated decision-making due to a potential for clashes and a lack of cooperation. Our theoretical framework suggests that the net effect on performance depends on whether LPTs are diverse in socio-demographic or occupational aspects. To test this hypothesis, we develop a comprehensive index that measures LPT diversity along six dimensions. Using a sample of 241 buyouts and 547 involved PE partners, we find that higher scores in the socio-demographic component (gender, age, nationality) are associated with higher deal returns and multiple expansion. The opposite is true for higher scores in the occupational component (professional experience, educational background, university affiliation). Further results suggest that the “bright side” of diversity gets relatively more important in case of complex buyouts and uncertain deal environments.

Keywords: Buyout Performance; Complexity; Occupational Diversity; Private Equity; Socio-demographic Diversity; Uncertainty

JEL Classification: G23, G24, G34, G41

Suggested Citation

Hammer, Benjamin and Pettkus, Silke and Schweizer, Denis and Wuensche, Norbert, The More the Merrier? Diversity and Private Equity Performance (December 10, 2020). British Journal of Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3746245

Benjamin Hammer (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Lancaster University Leipzig ( email )

Augustusplatz 1-4
Leipzig, 04109
Germany

Silke Pettkus

HHL Leipzig Graduate School of Management ( email )

Jahnallee 59
Leipzig, 04109

Denis Schweizer

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

Norbert Wuensche

affiliation not provided to SSRN

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