Due Diligence and Investee Performance


  • The authors would like to thank the Editor, John Doukas, three anonymous referees, and the participants at York University seminar series (March 2013, Toronto, Canada), the 2013 IFABS Conference (June 2013, Nottingham, UK), the 2014 EFMA Conference (June 2014, Rome, Italy), Paris Financial Management Conference (December 2015, Paris), 4th European Business Research Conference (April 2015, London), Annual Paris Economics, Finance and Business Conference (April 2016), as well as Pierpaolo Pattitoni, Jeffrey James Austin, Steven Balaban, Mohammad Hoque, Ali Mohammadi, Feng Zhan, Silvia Pazzi and Matteo Lippi Bruni for comments and suggestions. Simona Zambelli owes special thanks to the Fondazione Cariplo (Milan) for financial support, as well as to Rocco Corigliano and Roberto Tasca for support and suggestions. Douglas Cumming owes thanks to the Social Sciences and Humanities Research Council of Canada for financial support.


We estimate the economic value of due diligence (DD) in the context of private equity by investigating the relationship between DD and investee performance, while controlling for endogeneity. With the adoption of a novel dataset, we find evidence highly consistent with the view that a thorough DD is associated with improved investee performance. We also distinguish the role of different types of DD and show that the DD performed by fund managers has a more pronounced impact on performance. Instead, the DD mainly performed by external agents, i.e., consultants, lawyers and accountants, gives rise to puzzling results and imperfect matching.