Journal
EUROPEAN FINANCIAL MANAGEMENT
Volume 16, Issue 5, Pages 805-828Publisher
WILEY-BLACKWELL
DOI: 10.1111/j.1468-036X.2010.00557.x
Keywords
private equity; hedge funds; corporate governance; G34
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We document empirical evidence that both hedge fund (HF) and private equity fund (PE) investments are driven by corporate governance improvements, but address different types of agency conflicts. Whereas HFs focus on firms without a controlling shareholder, in particular family shareholders, PEs invest in firms with low managerial ownership. Both appear to address free cash flow problems differently. Aiming at increasing dividends, HFs tend to use commitment devices that can be implemented over a short horizon. PEs are inclined to longer-term strategies: they target firms that are particularly well suited for leverage increases because of low expected financial distress costs.
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