The relationship between private equity and social performance of financed companies: a literature review

Abstract

Due to recent major changes in economies and the environment, challenges related to social responsibility and corporate engagement towards stakeholders are becoming increasingly important in investment decisions. However, there is little research on how private equity influences the social responsibility of the financed companies. Literature on private equity has focused primarily on financial impacts and has ignored the impact on corporate social performance (CSP). The supporters of the stakeholder theory defend a largely positive relationship through investors’ activism, whereas the classical theory evokes a negative impact if investors seek financial profitability rather than social value.

This article therefore seeks to fill this gap and provide a theoretical literature review of the state-of-the art in order to understand the impact of private equity on financed companies’ social performance. To do so, a detour is necessary to review the foundations of CSP and to identify the main conceptual frameworks and controversies for measuring it. In this context, hypotheses and a conceptual model to be empirically tested in a future study will be proposed based on the results of the literature review.

Keywords: Private equity, corporate social responsibility, corporate social performance, stakeholder theory

JEL Classification: G24, M14, L25

Paper type: Theoretical Research