Corporate Governance of LBOs: The Role of Boards

55 Pages Posted: 1 Jul 2011 Last revised: 23 May 2012

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group; European Corporate Governance Institute (ECGI)

Date Written: May 2012


This paper examines board composition and CEO turnover when a public company is taken private by a private equity group in an LBO, using a new data set of all public to private transactions in the UK between 1998 and 2003. We find that when a company goes private, the board size is reduced and outside directors are replaced by LBO sponsors. LBO sponsors' presence on the board is higher for more complex and challenging transactions, suggesting intensive involvement of private equity when its supervision is needed. We also find that the presence of LBO sponsors on the board decreases CEO turnover and its sensitivity to performance, but increases operating performance. This suggests that effective monitoring of private equity reduces the reliance on short-term performance and allows for a longer term horizon for CEOs. It also calls into question the traditional view of CEO turnover as a sign of an effective board.

Keywords: Boards of Directors, Private Equity, Leveraged Buyouts, CEO Turnover, Corporate Governance

JEL Classification: G24, G30

Suggested Citation

Cornelli, Francesca and Karakaş, Oğuzhan, Corporate Governance of LBOs: The Role of Boards (May 2012). Available at SSRN: or

Francesca Cornelli (Contact Author)

London Business School ( email )

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Centre for Economic Policy Research (CEPR)

United Kingdom

Oğuzhan Karakaş

Cambridge Judge Business School - Finance Subject Group ( email )

University of Cambridge
Trumpington St.
Cambridge, CB2 1AG
United Kingdom


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


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