Post by Sapphire Capital on Aug 20, 2008 10:43:45 GMT 4
Institutional Investors and Private Equity
Kasper Meisner Nielsen
Chinese University of Hong Kong - Department of Finance; Copenhagen Business School - Center for Economic and Business Research (CEBR)
Review of Finance, Vol. 12, Issue 1, pp. 185-219, 2008
Abstract:
Entrepreneurial finance literature has highlighted that institutional investors are the main contributors to private equity funds. This paper complements these findings by documenting that institutional investors also invest directly in private equity. A major concern for such investments is the higher agency costs associated with private equity. We show that institutions invest in private firms with governance mechanisms that tend to reduce the expected agency costs and risk of minority expropriation. Good governance mechanisms further allow institutional investors to enjoy the benefits of syndication and thereby reduce idiosyncratic risk. In addition, we show that institutional investments tend to be followed by further improvements in corporate governance and tend to occur in high-growth firms within research and development intensive industries.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1159302
Kasper Meisner Nielsen
Chinese University of Hong Kong - Department of Finance; Copenhagen Business School - Center for Economic and Business Research (CEBR)
Review of Finance, Vol. 12, Issue 1, pp. 185-219, 2008
Abstract:
Entrepreneurial finance literature has highlighted that institutional investors are the main contributors to private equity funds. This paper complements these findings by documenting that institutional investors also invest directly in private equity. A major concern for such investments is the higher agency costs associated with private equity. We show that institutions invest in private firms with governance mechanisms that tend to reduce the expected agency costs and risk of minority expropriation. Good governance mechanisms further allow institutional investors to enjoy the benefits of syndication and thereby reduce idiosyncratic risk. In addition, we show that institutional investments tend to be followed by further improvements in corporate governance and tend to occur in high-growth firms within research and development intensive industries.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1159302