Sources of Value Gains in Minority Equity Investments by Private Equity Funds: Evidence from Block Share Acquisitions

60 Pages Posted: 19 Sep 2012 Last revised: 23 Mar 2017

See all articles by Guojun Chen

Guojun Chen

National University of Singapore

Jun-Koo Kang

Nanyang Business School, Nanyang Technological University

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Hyun Seung Na

Korea University Business School (KUBS)

Date Written: September 19, 2012

Abstract

Using block share acquisitions made by private equity (PE) funds, we examine the sources of value gains in PE minority equity investments. We find that the targets in PE acquisitions, particularly poorly performing targets, targets with high R&D intensity, and targets whose boards have PE-appointed directors, experience both higher announcement returns and better post-acquisition operating performance than do targets in non-PE acquisitions. The value creation is also more pronounced when PE-appointed directors have experience in the target’s industry. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation.

Keywords: Private equity; Minority equity investment; Governance engineering; Operational engineering; Board of director; Monitoring and advisory roles

JEL Classification: G2, G3, G34

Suggested Citation

Chen, Guojun and Kang, Jun-Koo and Kim, Jin-Mo and Na, Hyun Seung, Sources of Value Gains in Minority Equity Investments by Private Equity Funds: Evidence from Block Share Acquisitions (September 19, 2012). Columbia Business School Research Paper No. 12/53, Available at SSRN: https://ssrn.com/abstract=2148866 or http://dx.doi.org/10.2139/ssrn.2148866

Guojun Chen

National University of Singapore ( email )

NUS Business School
15 Kent Ridge Drive
Singapore, 119245
Singapore

Jun-Koo Kang (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Jin-Mo Kim

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Hyun Seung Na

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

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