International audienceThis paper articulates a theory of the conditions under which the alignment between individual and collective interests generates sustainable competitive advantage. The theory is based on the influence of tacitness, context specificity, and causal ambiguity in the determinants of different types of motivation (extrinsic, normative intrinsic, and hedonic instinsic) under varying conditions of environmental dynamism. The analysis indicates the need to consider motivational processes as a complement to current resource- and competence-based approaches in a comprehensive theory of competitive advantag

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We examine deal-level data on private equity transactions in the UK initiated during the period 1996 to 2004 by mature private equity houses. We un-lever the deal-level equity return and adjust for (un-levered) return to quoted peers to extract a measure of "alpha" or abnormal performance of the deal. The alpha is significantly positive on average and robust during sector downturns. In the cross-section of deals, higher alpha is related to greater improvement in EBITDA to Sales ratio (margin) and greater growth in EBITDA multiple during the private phase, relative to that of quoted peers. In particular, deals with higher alpha either grow their margins more substantially, and/or grow multiples more substantially, whilst expanding their revenues only in line with the sector. Based on interviews with general partners involved with the deals, we find that deals with higher alpha and higher margin growth are associated with greater intensity of engagement of private equity houses during the early phase of the deal, employment of value-creation initiatives for productivity and organic growth, and complementing top management with external support. Overall, our results are consistent with mature private equity houses creating value for portfolio companies through active ownership and governance.

We examine deal-level data from 395 private equity transactions in Western Europe initiated by large private equity houses during the period 1991 to 2007. We un-lever the deallevel equity return and adjust for un-levered return to quoted peers to extract a measure of abnormal performance of the deal. The abnormal performance is significantly positive on average, and stays positive in periods with low sector returns. In the cross-section of deals, higher abnormal performance is related to greater growth in sales and greater improvement in EBITDA to sales ratio (margin) during the private phase, relative to those of quoted peers.Finally, we show that general partners with an operational background (ex-consultants or exindustry-managers) generate significantly higher outperformance in organic deals that focus exclusively on internal value creation programs; in contrast, general partners with a background in finance (ex-bankers or ex-accountants) generate higher outperformance in deals with significant M&A events. We interpret these findings as evidence, on average, of positive, but heterogeneous skills at deal partner level in private equity transactions.

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