Private equity valuation under time-inconsistent preferences

Yuxiang Bian, Lin Chen, Xiong Xiong and Jinqiang Yang

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: Our research expands on the private equity (PE) valuation theory by incorporating the limited partner’s (LP) time-inconsistent preferences. Our findings show that time inconsistency has a detrimental impact on the LP’s certainty-equivalent valuation, which is dependent on the duration of investment and the value of PE asset. Through a comparative static analysis of the risk-attitude parameter and the future self arrival intensity, we have determined that the negative effects of time inconsistency can be mitigated by a more conservative attitude on the part of LP, while a higher future self arrival intensity exacerbates the impact of LP’s time inconsistency on their certainty-equivalent valuation.

Keywords: Private equity; Time-inconsistent; Valuations (search for similar items in EconPapers)
JEL-codes: D82 G11 G2 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923001046

DOI: 10.1016/j.ribaf.2023.101978

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