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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27878
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| Title: | Corporate Governance and Value Creation: Evidence from Private Equity |
| Authors: | Acharya, Viral
Hahn, Moritz
Kehoe, Conor |
| Issue Date: | 6-Feb-2009 |
| Series/Report no.: | FIN-08-032 |
| Abstract: | We examine deal-level data on private equity transactions in the UK
initiated during the period 1996 to 2004 by mature private equity
houses. We un-lever the deal-level equity return and adjust for
(un-levered) return to quoted peers to extract a measure of
"alpha" or abnormal performance of the deal. The alpha is
significantly positive on average and robust during sector downturns. In
the cross-section of deals, higher alpha is related to greater
improvement in EBITDA to Sales ratio (margin) and greater growth in
EBITDA multiple during the private phase, relative to that of quoted
peers. In particular, deals with higher alpha either grow their margins
more substantially, and/or grow multiples more substantially, whilst
expanding their revenues only in line with the sector. Based on
interviews with general partners involved with the deals, we find that
deals with higher alpha and higher margin growth are associated with
greater intensity of engagement of private equity houses during the
early phase of the deal, employment of value-creation initiatives for
productivity and organic growth, and complementing top management with
external support. Overall, our results are consistent with mature
private equity houses creating value for portfolio companies through
active ownership and governance. |
| URI: | http://hdl.handle.net/2451/27878 |
| Appears in Collections: | Finance Working Papers
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