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Due Diligence and Investee Performance
Author(s) -
Cumming Douglas,
Zambelli Simona
Publication year - 2017
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12100
Subject(s) - due diligence , endogeneity , context (archaeology) , equity (law) , imperfect , business , matching (statistics) , value (mathematics) , economics , econometrics , computer science , finance , political science , statistics , mathematics , machine learning , paleontology , linguistics , philosophy , law , biology
We estimate the economic value of due diligence (DD) in the context of private equity by investigating the relationship between DD and investee performance, while controlling for endogeneity. With the adoption of a novel dataset, we find evidence highly consistent with the view that a thorough DD is associated with improved investee performance. We also distinguish the role of different types of DD and show that the DD performed by fund managers has a more pronounced impact on performance. Instead, the DD mainly performed by external agents, i.e., consultants, lawyers and accountants, gives rise to puzzling results and imperfect matching.