When private equity firms take over, they manage to jack up profits while simultaneously making the company worth less overall.
While PE is often credited with 'fixing' inefficient companies, data from Korean firms shows that once PE investors exercise control rights, the company's long-term market value (Tobin's Q) declines even as immediate accounting returns (ROA) go up.
Private equity, managerial intervention, and firm value: Evidence from Korean firms
SSRN · 6461026
This study examines how managerial control involvement by private equity investors affects firm value using a panel of Korean listed firms from 2012 to 2023. Our findings show that private equity investment is generally associated with positive changes in firm risk and firm value. However, after private equity investors begin exercising control rights, the risk‐reducing effect is no longer observed. Tobin’s Q declines significantly following private equity control intervention, whereas ROA shows