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The impact of managerial ownership in private equity portfolio companies: examining the role of equity-based incentives in outperforming public equity markets
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This study investigates how managerial equity incentives influence performance of private equity backed companies compared to publicly traded firms. Using unique panel data and fixed effects models, the analysis confirms that private equity backed firms outperform public ones. Incorporating managerial equity ownership shows these incentives, rather than fixed salaries, partially explain this performance advantage. About one-fifth of the observed difference is attributable to these incentives. After firms become public through initial public
offerings, the incremental benefit from equity-based incentives diminishes, aligning with public company norms. Thus, managerial equity stakes meaningfully contribute to outperformance in private equity contexts.
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Private equity Managerial incentives Firm performance Private equity outperformance Value creation Principal-agent theory Management ownership Public equity