Corporate Governance and Value Creation: Evidence from Private Equity

Corporate Governance and Value Creation: Evidence from Private Equity

Viral Acharya, Moritz Hahn, Conor Kehoe

Series number :

Serial Number: 
232/2009

Date posted :

January 01 2009

Last revised :

November 25 2018
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Keywords

  • Leveraged buyouts (LBO) • 
  • management buyouts (MBO) • 
  • active ownership • 
  • Activism • 
  • management turnover • 
  • alpha

We examine deal-level data from 395 private equity transactions in Western Europe initiated by large private equity houses during the period 1991 to 2007. We un-lever the deal-level equity return and adjust for un-levered return to quoted peers to extract a measure of abnormal performance of the deal.

The abnormal performance is significantly positive on average, and stays positive in periods with low sector returns. In the cross-section of deals, higher abnormal performance is related to greater growth in sales and greater improvement in EBITDA to sales ratio (margin) during the private phase, relative to those of quoted peers. Finally, we show that general partners with an operational background (ex-consultants or ex-industry-managers) generate significantly higher outperformance in organic deals that focus exclusively on internal value creation programs; in contrast, general partners with a background in finance (ex-bankers or ex-accountants) generate higher outperformance in deals with significant M&A events. We interpret these findings as evidence, on average, of positive, but heterogeneous skills at deal partner level in private equity transactions.

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Authors

Professor
Real name: 
Viral Acharya
Fellow, Research Member
Leonard N. Stern School of Business, New York University
Real name: 
Moritz Hahn
Real name: 
Conor Kehoe