The Effects of Private Equity on Targets: Majority versus Minority Investments
AbstractThis paper investigates the differential effects on performance of majority and minority Private Equity (PE) investments. By using a difference in difference approach, we compare a sample of 191 firms in the years following the PE investment with a control group constituted by firms that are the most similar to targets in the years preceding the deal. We find that, in the three years following PE investments, targets achieve higher profitability, higher sales and employ more than their control counterparts, and this is more so for minority deals. We also show that PE targets experience a significantly higher board turnover than controls, and that changes are more pronounced in majority investments where both the CEO and the chairman are replaced. Moving to targets ownership types, we find that PEs are especially effective when they acquire a minority interest in family firms or, to some extent, when they take a majority stake in non-family firms. These results suggest that when dealing with family firms PEs are particularly beneficial when they tend to complement rather than substitute the incumbent human capital, namely the entrepreneurs/owners serving as CEO or chairman before the PE steps in.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0167.
Length: 50 pages
Date of creation: Jul 2013
Date of revision:
Private Equity; Minority Investments; Private Firms; Firm Performance; Corporate Governance. JEL: G32; G34.;
Find related papers by JEL classification:
- Cor - Mathematical and Quantitative Methods - - - - -
- Gov - Financial Economics - - - - -
- JEL - Labor and Demographic Economics - - - - -
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-BEC-2013-08-05 (Business Economics)
- NEP-EFF-2013-08-05 (Efficiency & Productivity)
- NEP-EUR-2013-08-05 (Microeconomic European Issues)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francesca Cornelli & Zbigniew Kominek & Alexander Ljungqvist, 2010.
"Monitoring Managers: Does it Matter?,"
2010.30, Fondazione Eni Enrico Mattei.
- Francesca Cornelli & Zbigniew Kominek & Alexander Ljungqvist, 2010. "Monitoring managers: does it matter?," Working Papers 110, European Bank for Reconstruction and Development, Office of the Chief Economist.
- Cornelli, Francesca & Kominek, Zbigniew & Ljungqvist, Alexander P., 2009. "Monitoring Managers: Does it Matter?," CEPR Discussion Papers 7571, C.E.P.R. Discussion Papers.
- Frank R Lichtenberg & Donald Siegel, 1989.
"The Effects Of Leveraged Buyouts On Productivity And Related Aspects Of Firm Behavior,"
89-5, Center for Economic Studies, U.S. Census Bureau.
- Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
- Frank R. Lichtenberg & Donald Siegel, 1991. "The Effects of Leveraged Buyouts on Productivity and Related Aspects of Firm Behavior," NBER Working Papers 3022, National Bureau of Economic Research, Inc.
- Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
- Kevin Amess & Mike Wright, 2012. "Leveraged buyouts, private equity and jobs," Small Business Economics, Springer, vol. 38(4), pages 419-430, May.
- Richard Harris & Donald S. Siegel & Mike Wright, 2003.
"Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom,"
Rensselaer Working Papers in Economics
0304, Rensselaer Polytechnic Institute, Department of Economics.
- Richard Harris & Donald S. Siegel & Mike Wright, 2005. "Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 148-153, February.
- Muscarella, Chris J & Vetsuypens, Michael R, 1990. " Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
- Steven N. Kaplan & Per Stromberg, 2009.
"Leveraged Buyouts and Private Equity,"
Journal of Economic Perspectives,
American Economic Association, vol. 23(1), pages 121-46, Winter.
- Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
- Boucly, Quentin & Sraer, David & Thesmar, David, 2011. "Growth LBOs," Journal of Financial Economics, Elsevier, vol. 102(2), pages 432-453.
- Bull, Ivan, 1989. "Financial performance of leveraged buyouts: An empirical analysis," Journal of Business Venturing, Elsevier, vol. 4(4), pages 263-279, July.
- Smith, Abbie J., 1990. "Corporate ownership structure and performance *1: The case of management buyouts," Journal of Financial Economics, Elsevier, vol. 27(1), pages 143-164, September.
- Shourun Guo & Edith S. Hotchkiss & Weihong Song, 2011. "Do Buyouts (Still) Create Value?," Journal of Finance, American Finance Association, vol. 66(2), pages 479-517, 04.
- Battistin, Erich & Graziano, Clara & Parigi, Bruno M., 2012. "Connections and performance in bankers’ turnover," European Economic Review, Elsevier, vol. 56(3), pages 470-487.
- Erik Lie, 2001. "Detecting Abnormal Operating Performance: Revisited," Financial Management, Financial Management Association, vol. 30(2), Summer.
- William S. Schulze & Michael H. Lubatkin & Richard N. Dino, 2002. "Altruism, agency, and the competitiveness of family firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 247-259.
- Alon Brav & Wei Jiang & Frank Partnoy & Randall Thomas, 2008. "Hedge Fund Activism, Corporate Governance, and Firm Performance," Journal of Finance, American Finance Association, vol. 63(4), pages 1729-1775, 08.
- Kevin Amess & Mike Wright, 2007. "The Wage and Employment Effects of Leveraged Buyouts in the UK," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 14(2), pages 179-195.
- Giannetti, Mariassunta & Liao, Guanmin & Yu, Xiaoyun, 2012. "The Brain Gain of Corporate Boards: A Natural Experiment from China," CEPR Discussion Papers 9190, C.E.P.R. Discussion Papers.
- Steven J. Davis & John C. Haltiwanger & Ron S. Jarmin & Josh Lerner & Javier Miranda, 2011.
"Private Equity and Employment,"
NBER Working Papers
17399, National Bureau of Economic Research, Inc.
- Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
- Maury, Benjamin & Pajuste, Anete, 2005. "Multiple large shareholders and firm value," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1813-1834, July.
- Viral V. Acharya & Conor Kehoe & Michael Reyner, 2009. "Private Equity vs. PLC Boards in the U.K.: A Comparison of Practices and Effectiveness," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(1), pages 45-56.
- April Klein & Emanuel Zur, 2009. "Entrepreneurial Shareholder Activism: Hedge Funds and Other Private Investors," Journal of Finance, American Finance Association, vol. 64(1), pages 187-229, 02.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabio Maria Manenti).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.