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[Research]Sources of value gains in minority equity investments by private equity funds: Evidence from block s
2014.12.01 Views 699 경영학연구분석센터
Journal of Corporate Finance
Volume 29, December 2014, Pages 449–474
Guojun Chen (a), (1), Jun-Koo Kang (b), (2), , Jin-Mo Kim (c), (3), Hyun Seung Na (d),
a Finance and Economics Division, Columbia Business School, Columbia University, New York, NY 10027, United States
b Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore
c Department of Finance and Economics, Rutgers Business School, Rutgers University, Piscataway, NJ 08854-8054, United States
d Korea University Business School, 145 Anam-ro, Seongbuk-gu, Seoul 136-701, Republic of Korea
http://www.sciencedirect.com/science/article/pii/S0929119914001084
Abstract
Using block share acquisitions made by private equity (PE) funds, we examine the sources of value gains in PE minority equity investments. We find that compared with non-PE acquirers, PE acquirers are more likely to place representatives with finance experience or those with experience in the target's industry on the target's board when the need for target oversight and/or advice is higher. The targets in PE acquisitions, particularly poorly performing targets, targets with high R&D intensity, and targets with PE-appointed directors who have experience in the target's industry, realize both higher announcement returns and better post-acquisition operating performance than do targets in non-PE acquisitions. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation in PE minority equity investments.
Keywords
Private equity; Minority equity investment; Governance engineering; Operational engineering; Board of directors; Monitoring and advisory roles
Volume 29, December 2014, Pages 449–474
Guojun Chen (a), (1), Jun-Koo Kang (b), (2), , Jin-Mo Kim (c), (3), Hyun Seung Na (d),
a Finance and Economics Division, Columbia Business School, Columbia University, New York, NY 10027, United States
b Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore
c Department of Finance and Economics, Rutgers Business School, Rutgers University, Piscataway, NJ 08854-8054, United States
d Korea University Business School, 145 Anam-ro, Seongbuk-gu, Seoul 136-701, Republic of Korea
http://www.sciencedirect.com/science/article/pii/S0929119914001084
Abstract
Using block share acquisitions made by private equity (PE) funds, we examine the sources of value gains in PE minority equity investments. We find that compared with non-PE acquirers, PE acquirers are more likely to place representatives with finance experience or those with experience in the target's industry on the target's board when the need for target oversight and/or advice is higher. The targets in PE acquisitions, particularly poorly performing targets, targets with high R&D intensity, and targets with PE-appointed directors who have experience in the target's industry, realize both higher announcement returns and better post-acquisition operating performance than do targets in non-PE acquisitions. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation in PE minority equity investments.
Keywords
Private equity; Minority equity investment; Governance engineering; Operational engineering; Board of directors; Monitoring and advisory roles