Do private equity target firms exhibit less effectual governance structures?

Abstract

© 2015, © The Author(s) 2015. We investigated the unique corporate governance structure of Australian private equity target firms to establish the disciplinary motive underpinning a corporate buy-out and tested our expectations using a sample of 43 publicly listed private equity target firms and a control sample of 182 conventional corporate targets, matched by year and industry, for the period 2001–2010. The findings provide evidence of a less effectual corporate governance structure for private equity target firms. In particular, our analysis reveals that, relative to our benchmark sample, private equity target firms have larger boards, more board meetings and a greater inside ownership. Similarly, our results show that the probability of a firm being a private equity target increases with board size, percentage of insider directors, board meetings and CEO ownership. Consistent with results from work elsewhere, private equity target firms appear to perform ex post reactive monitoring roles rather than ex ante proactive roles.