Sources of value gains in minority equity investments by private equity funds: Evidence from block share acquisitions

Guojun Chen, Jun-Koo Kang, Jin-Mo Kim and Hyun Seung Na

Journal of Corporate Finance, 2014, vol. 29, issue C, 449-474

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 (search for similar items in EconPapers)
JEL-codes: G2 G3 G34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:29:y:2014:i:c:p:449-474

DOI: 10.1016/j.jcorpfin.2014.09.003

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