Managing the Deal: CEO Turnover in LBOs - Evidence from Sweden

Abstract: This study examines CEO turnover in Private Equity (PE) and other privately held companies in Sweden by means of an exploratory research approach. A variety of causes and consequences of CEO turnover are tested systematically along the typical Private Equity investment process structure. The analysis is underpinned by unique, hand-picked data constituting a sample of 124 PE sponsored transactions and matched other private firm observations in Sweden between 1999 and 2017. The sample reveals significant differences in CEO turnover between the PE- (66%) and other privately held companies (39%). The differences are found to persist when controlling for conceivable endogenous and exogenous factors. In addition, examining distinct stages and aspects of the PE investment process similarly exposes noteworthy differences in CEO turnover within the set of PE sponsored transactions. This study contributes to three notable gaps in the literature. Firstly, it examines a previously largely neglected class of PE investments that account for the majority of the market. Secondly, it investigates the entire investment period, rather than mere fractions of the same. Finally, it draws novel inferences by complementing the analysis with an assessment of other privately held companies. The results of this study suggest that CEO turnover, be it voluntary or involuntary, is a markedly common situation in Private Equity investments and that managing the same is a source of value creation which received limited attention in academia thus far.