Private equity backed IPOs rule! Not.

New research conducted by The Corporate Library for the IRRC Institute explodes the myth that IPOs launched by private equity firms do a better job at aligning management and shareholder interests through a series of governance mechanisms. Indeed, the study finds that governance is generally weaker at IPOs funded by buyout-fund-backed companies. Download the free report here.

Using a control group of non-PE-backed IPOs, The Corporate Library studied:

• ownership
• board structure and make-up
• related party transactions
• takeover defenses
• executive compensation

A few of the more incendiary findings are that the original backers of buyout-fund-backed companies exerted greater control over key committees and committee chairs, especially compensation, than other IPOs. In a matched pairs analysis (matching companies for size, industry, and date of IPO), takeover defenses, such as classified boards and restrictions on director removal, were far stronger at buyout-fund-backed IPOs. It also appears that the classic claim that private equity IPOs produce more highly-incentivized executives. The study finds that they certainly get paid more, but that this is not because of higher incentives. The greater prevalence of higher base salaries, time-restricted stock, perks, and lucrative consulting arrangements is a greater contributor than incentives.

Paul Hodgson — Senior Research Associate