Corporate & Securities Law

Private equity and corporate jets

I’ve written about the benefits of private equity’s “uncorporate” discipline, including owner exit rights and high-powered compensation, in reducing managerial agency costs in large firms.  See my Partnership Governance of Large Firms and the longer version in Chapter 8 of my Rise of the Uncorporation. 

Here’s some more evidence:  Edgerton, Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts.  Here’s the abstract:

This paper uses rich, new data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average jet fleets at least 40% smaller than observably similar publicly-traded firms. Similar fleet reductions are observed within firms that go private in leveraged buyouts. I discuss assumptions under which comparisons across and within firms provide estimates of lower and upper bounds on the average treatment effect of taking a firm from public to private in a leveraged buyout. Both censored and standard quantile regressions suggest that results at the mean are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership.

Full post as published by Truth on the Market on February 08, 2011 (boomark / email).