What do private equity firms say they do?

Paul Gompers, Steven Kaplan () and Vladimir Mukharlyamov

Journal of Financial Economics, 2016, vol. 121, issue 3, 449-476

Abstract: We survey 79 private equity (PE) investors with combined assets under management of more than $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rates of return and multiples to evaluate investments. Their limited partners focus more on absolute performance as opposed to risk-adjusted returns. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

Keywords: Private equity; Valuation; Capital structure; Value creation (search for similar items in EconPapers)
JEL-codes: G11 G24 G30 G31 G32 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (70)

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Related works:
Working Paper: What Do Private Equity Firms Say They Do? (2015)
Working Paper: What Do Private Equity Firms Say They Do? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:121:y:2016:i:3:p:449-476

DOI: 10.1016/j.jfineco.2016.06.003

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