Corporate governance and independent directors: behind private equity investment performance

Recourse to independent directors by private equity investors per se is not tied to performance increases. We draw this conclusion from analyzing a unique data set representative of the Italian context: all deals realized by Italian closed-end funds from 1999 to 2003. Our study shows that independent directors impact the rate of return only on deals which require very specific skills, i.e. turnaround and buyout investments. Besides, busy directors do not seem to affect negatively the internal rate of return. Finally, independent directors tend to resign when performance is unsatisfactory and consent to shave losses when performances are negative.