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The more the merrier? : diversity and private equity performance

  • This paper explores how diversity among lead partner teams (LPTs) of private equity (PE) funds affects buyout performance. We argue that there is a trade-off between the ‘bright side’ of diversity (i.e. improved decision-making due to a broader set of perspectives) and the ‘dark side’ (i.e. deteriorated decision-making due to a potential for clashes and a lack of cooperation). Our theoretical framework suggests that the net effect on performance depends on whether LPTs are diverse in socio-demographic or occupational aspects. To test this hypothesis, we develop a comprehensive index that measures LPT diversity along six dimensions. Using a sample of 241 buyouts and 547 involved PE partners, we find that higher scores in the socio-demographic component (gender, age, nationality) are associated with higher deal returns and multiple expansions. The opposite is true for higher scores in the occupational component (professional experience, educational background, university affiliation). Further results suggest that the ‘bright side’ of diversity gets relatively more important in case of complex buyouts and uncertain deal environments.

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Document Type:Article
Author:Benjamin HammerORCiD, Silke Pettkus, Denis SchweizerORCiD, Norbert Wünsche
Chairs and Professorships:Chair of Financial Management
Parent Title (English):British journal of management
Year of Completion:2022
First Page:231
Last Page:265
Tag:Buyout performance; Complexity; Occupational diversity; Private equity; Uncertainty
Content Focus:Academic Audience
Peer Reviewed:Yes
Rankings:AJG Ranking / 4
VHB Ranking / B
SJR Ranking / Q1
Licence (German):License LogoCreative Commons - CC BY - Namensnennung 4.0 International