Corporate Raiders or Saviors?... Silla University Professor Woo-sung Kim Presents 'Study on the Effects of Private Equity Participation in Management Control'

Korean Academic Society of Business Administration Symposium

Did private equity funds, once labeled as the 'villains' of the capital market, truly improve the fundamentals of companies?

Silla University (President Heo Namsik) announced on December 25 that Professor Woo-sung Kim from the Department of Business Administration presented the results of an empirical study analyzing the impact of private equity funds' (PEF) involvement in management control on corporate risk and firm value at the Korean Academic Society of Business Administration symposium.

Professor Woo-sung Kim, Department of Business Administration, Silla University.

The symposium, held on December 20 at Seoul National University, was organized under the main theme of "The Advent and Review of Fund Capitalism." In-depth discussions took place on the impact of private equity funds' rapidly expanding intervention in corporate management within Korea's capital market, focusing on financial performance, corporate governance, and market evaluation.

Professor Kim analyzed domestic listed companies from 2012 to 2023 and found that private equity investments are generally perceived as a positive signal in the market. However, when examining the period after management control involvement, Tobin's Q-a measure of firm value-showed adjustment, while return on assets (ROA) improved.

This suggests that private equity intervention may be more closely related to short-term performance improvements, such as cost reduction and enhanced operational efficiency, rather than long-term growth in firm value.

Additionally, the study analyzed the effects of changes in corporate governance that occur during private equity's involvement in management control. The results showed that increasing the proportion of outside directors had a significantly positive effect on reducing corporate risk and enhancing firm value, whereas CEO replacement did not have a statistically consistent impact. This indicates that ongoing board-centered monitoring and checks may play a more important role in corporate performance than management replacement itself.

Professor Woo-sung Kim stated, "Private equity funds are not merely financial investors, but entities that have a substantial influence on corporate strategy and decision-making structures. This study is meaningful in that it empirically demonstrates the effects of private equity's participation in management control can vary depending on a company's financial structure and stage of growth."

This research presentation is being recognized for providing important insights into the relationship between corporate governance and performance, not only for investors, policymakers, and corporate management, but also for students studying business administration, at a time when societal discussions about the role of private equity funds are expanding.

Professor Kim expressed, "It was very meaningful to be able to present my research findings at this academic symposium," and added, "I will continue to do my best through research and education so that Silla University students can broaden their understanding of private equity funds and corporate governance."