The Influence of Private Equity Experience on Corporate Transactions

Emilie Feldman, Management, The Wharton School

Abstract: This project considers whether CEOs and other top managers whose professional backgrounds are in private equity undertake different and/or more successful acquisitions and divestitures than CEOs and other top managers who do not have professional backgrounds in private equity. Drawing on insights from the literature on the relationship between experience and performance, and the literature on corporate ownership and the disciplining role that strong incentives can play, I hypothesize that managers who have prior professional experience in private equity are likely to make better selection and implementation decisions in acquisitions and divestitures and that the transactions they choose to undertake will result in better stock market and operational performance for their firms, relative to managers who lack prior professional experience in private equity. I intend to test these predictions using hand-collected data on the professional backgrounds of the managers of large, publicly-traded companies and on the transactions that these companies undertake. The findings generated by this project have the potential to address several of the Mack Institute’s research priorities, specifically surrounding how companies can become growth leaders rather than laggards, how companies can make wise bets on long-term projects when prospects are distant and uncertain yet costs are likely to be incurred, and how resources should be allocated and projects prioritized and selected.