Is corporate governance of private equity targets more effective for risk mitigation?

Vladimiro Marini (), Massimo Caratelli, Gian Paolo Stella and Ilaria Barbaraci
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Vladimiro Marini: University of Rome “Tor Vergata”
Massimo Caratelli: RomaTre University
Gian Paolo Stella: RomaTre University

Journal of Management & Governance, 2022, vol. 26, issue 3, No 5, 811 pages

Abstract: Abstract Private equity is a source of finance and a governance device characterised by active monitoring through sponsors that intervene in targets’ corporate governance. As sponsors are skilled and motivated acquirors, we investigated whether corporate governance mechanisms mitigate leveraged targets’ risk of financial distress differently compared to non-acquired companies through the lenses of agency theory and resource-based theories. We found that targets and non-acquired companies are not significantly different in terms of corporate governance features, but sponsors are skilled enough to choose corporate governance members to mitigate risk more, especially when boards are smaller, have busier industry expert directors, and mandate execution to more managers. These results can be useful to targets, targets’ investors and lenders, and policymakers.

Keywords: Private equity; Corporate governance; Board of directors; Risk of financial distress (search for similar items in EconPapers)
JEL-codes: G23 G34 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10997-021-09571-z

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