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Contracts and Returns in Private Equity Investments

Emilia Garcia-Appendini, Filippo Ippolito & Stefano Caselli

abstract We analyze the relationship between contracts and returns in private equity (PE) investments. Contractual control in the form of covenants tends to be employed to identify good deals. Better quality fi?rms are more likely to have covenant-rich contracts, as they are less concerned by the constraints imposed by the covenants. PE investors appoint closer associates of the fund in deals that are performing poorly but tend to outsource board governance in better deals. Collectively, our evidence suggests that PE investors operate along two dimensions, choosing covenants and board seats di¤erently, based on the ex-ante quality of the company.
   
type journal paper
   
keywords private equity funds, venture capital, IRR, covenants, board directors
   
language English
kind of paper journal article
date of appearance 5-9-2012
journal Journal of Financial Intermediation
publisher Elsevier (Amsterdam)
ISSN 1042-9573
ISSN (online) 1096-0473
DOI 10.1016/j.jfi.2012.08.002
number of issue in press, available online
page(s) forthcoming
review double-blind review
   
citation Garcia-Appendini, E., Ippolito, F., & Caselli, S. (2012). Contracts and Returns in Private Equity Investments. Journal of Financial Intermediation(in press, available online), forthcoming, DOI:10.1016/j.jfi.2012.08.002.