Corporate Governance and Independent Directors: Much Ado About Nothing? The Evidence Behind Private Equity Investment Performance

57 Pages Posted: 6 Mar 2007  

Stefano Gatti

Bocconi University - Department of Finance

Stefano Caselli

Bocconi University - Department of Finance

Date Written: February 21, 2007

Abstract

Recourse to independent directors by private equity investors is not tied to performance increases. We draw this conclusion from analyzing a unique data set representative of the European context: all deals made by Italian closed-end funds from 1999 to 2003. Our study shows, in fact, that corporate governance does not impact the rate of return on a deal. Performance, instead, is driven by the characteristics of an initiative (exit-way, holding period and shareholding).

Further, we find that independent directors are involved in deals requiring greater skills and know-how. They tend to resign when performance is unsatisfactory. Moreover, these professionals improve deal performance if their commitment with the management company lasts throughout the deal and if there is a continual turnover of these directors.

Keywords: performance puzzle, independent director, corporate governance, closed-end fund, private equity

JEL Classification: G34, G24, G11

Suggested Citation

Gatti, Stefano and Caselli, Stefano, Corporate Governance and Independent Directors: Much Ado About Nothing? The Evidence Behind Private Equity Investment Performance (February 21, 2007). Available at SSRN: https://ssrn.com/abstract=968465 or http://dx.doi.org/10.2139/ssrn.968465

Stefano Gatti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Stefano Caselli (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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