Does private equity ownership improve corporate performance?

Abstract

This paper studies the impact of private equity (PE) buyout fund ownership on the performance of their portfolio firms. Using Danish data during 1991-2004 portfolio firms are compared to otherwise comparable firms not subjected to such an ownership change. The main finding is that PE buyout fund ownership has a significant negative effect on firm performance relatively to similar firms. This result indicates that the socalled superior corporate governance model is not consistent with the data partly because post-buyout ownership concentration falls and that debt does not lead to efficiency improvements. Moreover, a proxy for expropriation seems to be present in the data since post-buyout dividend payments increases. Alternative explanations are examined - such as selection bias, valuation bias and measurement errors – but the main finding remains unaffected.

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