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The corporate governance of private equity-backed companies

Witney, Simon (2017) The corporate governance of private equity-backed companies. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.i6w3wurdap9p


The governance of private equity-backed companies is a “black box”: relatively little is known about the decision-making structures in these economically important businesses. This thesis looks inside that black box and, by studying the corporate governance arrangements in a unique sample of predominantly small and mid-size UK private equity-backed companies, proposes a theory to explain them. The dominant theoretical framework for UK legal scholars is grounded in the notion that separation of ownership and control within large companies creates an “agency problem” which either the market, or regulators, or a combination of both, needs to fix. In this thesis, I explain the structure of the typical private equity-backed company and conclude that – although there is no separation of ownership and control in the sense that the shareholders lack economic incentives and wherewithal to intervene – agency problems do need to be solved by private ordering, and I describe how that is achieved in practice. However, I also describe two parallel functions of the decision-making structures that are established: to ensure that the company makes better, and more legitimate, decisions; and to protect the specific and separate interests of the investor. I then explore how well these three objectives can be achieved within the framework set by UK company law, and the ways in which the actors adopt or vary default rules, and seek to contract around apparently mandatory rules, in order to accommodate their multiple objectives. In the final part of this thesis, I describe the evidence that private equity-backed companies outperform their peers, and consider existing empirical research that seeks to explain that outperformance. I argue that the corporate governance systems are a significant explanatory factor and that, by re-conceptualising private equity corporate governance in the way that I have suggested, we can adopt alternative academic frameworks to better understand the drivers of that outperformance. Finally, I draw out lessons for policy-makers and practitioners and suggest avenues for future research.

Item Type: Thesis (PhD)
Additional Information: © 2017 Simon Witney
Library of Congress subject classification: K Law > K Law (General)
Sets: Departments > Law
Supervisor: Kershaw, David and Gerner-Beuerle, Carsten

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