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Private Equity, Corporate Governance and Out-Performance of High-Growth Firms

Author

Listed:
  • Oleg Badunenko
  • Moritz Fabien Karber
  • Dorothea Schäfer

Abstract

The paper investigates how Private Equity (PE) ownership influences out-performance of a high-growth firm, and whether it differs from the effect of two other important types of financial investors: banks and non-bank financial firms. We transform the levered return on equity into a unlevered return and empirically test on some 30 thousand high growth European firms whether Private Equity' or other financial investors' ownership matter. The empirical analysis suggests three major conclusions. The shareholding by PE and bank has influence on out-performance but only if either the PE investor or the bank hold between 75 to 100 percent of firm's shares. The direction of the effect is opposite. PE has a positive, while bank has a negative influence on firm's out-performance. We also show that the out-performance of a firm with shareholding of non-bank financial firms up to 50 percent is lower than the out-performance of a firm that does not have such ownership.

Suggested Citation

  • Oleg Badunenko & Moritz Fabien Karber & Dorothea Schäfer, 2010. "Private Equity, Corporate Governance and Out-Performance of High-Growth Firms," Working Paper / FINESS 3.2, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwfin:diwfin3.2
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.412888.de/diw_finess_03020.pdf
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    Citations

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    Cited by:

    1. Rabah Amir & Michael Troege, 2011. "On the effects of banks’ equity ownership on credit markets," Annals of Finance, Springer, vol. 7(1), pages 31-52, February.

    More about this item

    Keywords

    Private equity; financial investor; bank; out-performance; ownership structure;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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