Management compensation in Finnish portfolio companies

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School of Business | Master's thesis
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PURPOSE OF THE STUDY Since 1980s a new field of business has emerged in the financial world. Private Equity funds invest into companies with significant growth potential, cash flows or consolidation opportunities. Several previous studies have focused on the operational performance under the private equity ownership. However, the managerial compensation under the private equity ownership has drawn little academic research as a result of reluctance to publish the compensation figures. This thesis contributes to the existing literature and provides a comprehensive view on the compensation levels for portfolio company CEOs in Finnish context. DATA I have based my numerical study on a data sample of 42 private equity owned company CEO's annual monetary compensation between 2009 and 2011 and the respective company financial information between 2008 and 2011. All the managers are situated in Finland and thus taxed under Finnish tax legislation. I have combined the hand-collected company specific data to respective management compensation figures retrieved from the tax authorities. I have benchmarked the data sample to small and mid-cap companies listed in the OMX Helsinki stock exchange. RESULTS My findings support the hypothesis that managers in portfolio companies receive smaller annual compensation compared to their peers in public companies. The difference is likely compensated by the possible exit proceedings. However, I did not find statistically significant relation between company's profitability measured as EBITDA and management compensation. The results support previous academic studies, that managers in larger companies measured as net sales receive higher annual compensation.
Portfolio companies, management compensation, private equity
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