Do Parenting Strategies Pay Off for PE Firms?

Abstract

This paper theoretically and empirically investigates the idea that private equity (PE) firms are not an economically superior organizational arrangement to public corporations but may profit from applying forms of parenting activities beyond governance measures. Using a unique sample of 143 global PE firms, evidence that PE firms that actively engage in managing their portfolio companies rather than purely relying on arbitrage and financial leverage add superior value to their shareholders was found. However, while results prove a strong positive association between the engagement of PE firms in actively developing business strategies for the portfolio companies and their overall performance they also show that PE firms underperform if they try to exploit synergies. Beyond providing empirical evidence of the explanatory power of the parenting advantage concept for the PE industry, this paper contributes to theory development in the field of strategic management.KeywordsPrivate EquityParental ContributionAsset ManagementParenting StrategyGovernance PracticeThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.