Francesca Cornelli (London Business School)

“Team Stability and Performance: Evidence fromPrivate Equity”

abstract

We examine the effect of team turnover on performance studying the privateequity industry. Using a unique data set that tracks over time teams in 138PE managers and their performance, we uncover a positive relation betweenturnover and fund performance. We propose and confirm in the data twochannels that explain our findings: i) in the short-run, performance improveswhen bad performers are fired, ii) in the long-run, turnover helps teams toadapt and replenish their skills in response to shifting external demand. Ourfindings suggest that frictions coming from informational asymmetries maydeter optimal turnover. These findings are surprising given the common beliefamong PE investors that team stability is key to long-term success.