NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Managerial Incentives and Value Creation: Evidence from Private Equity

Phillip Leslie, Paul Oyer

NBER Working Paper No. 14331
Issued in September 2008
NBER Program(s):   CF   IO   LE   LS

We analyze the differences between companies owned by private equity (PE) investors and similar public companies. We document that PE-owned companies use much stronger incentives for their top executives and have substantially higher debt levels. However, we find little evidence that PE-owned firms outperform public firms in profitability or operational efficiency. We also show that the compensation and debt differences between PE-owned companies and public companies disappear over a very short period (one to two years) after the PE-owned firm goes public. Our results raise questions about whether and how PE firms and the incentives they put in place create value.

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Document Object Identifier (DOI): 10.3386/w14331

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