The More the Merrier?:Diversity and Private Equity Performance

Hammer, Benjamin and Pettkus, Silke and Schweizer, Denis and Wünsche, Norbert (2021) The More the Merrier?:Diversity and Private Equity Performance. British Journal of Management. ISSN 1467-8551

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Abstract

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.

Item Type:
Journal Article
Journal or Publication Title:
British Journal of Management
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1405
Subjects:
ID Code:
150690
Deposited By:
Deposited On:
14 Jan 2021 10:16
Refereed?:
Yes
Published?:
Published
Last Modified:
23 Feb 2021 09:23