Premium
Optimal ownership structure in private equity
Author(s) -
Liu Bo,
Liu Yang,
Yang Jinqiang
Publication year - 2018
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12130
Subject(s) - equity (law) , valuation (finance) , leverage (statistics) , business , private equity , economics , private equity fund , actuarial science , microeconomics , financial economics , finance , political science , law , machine learning , computer science
We develop a tractable model to analyse the valuation of a general partner (GP) and the ownership allocation in a private equity (PE) fund. Our results indicate that holding ownership will increase GP's value. We further explore the influential factors that affect GP's optimal ownership decision. Our model predicts that GP's managerial skill has positive effects on GP's shareholding choice. Factors such as leverage, unspanned risks, GP's compensation have negative impacts on GP ownership decision. The fund's maturity has a non‐monotonic and concave influence. Moreover, the widely used performance measures implied by our model are consistent with empirical findings.