Informational asymmetries in US private equity: regulation in a changing regulatory environment

Ernest N. Biktimirov and Mohammed H. Dore

Journal of Financial Regulation and Compliance, 2025, vol. 34, issue 2, 287-302

Abstract: PurposeThis paper aims to analyze the structural features and regulatory challenges of US private equity, with a focus on informational asymmetries between general and limited partners. It examines how short-term, high-leverage strategies and limited transparency have shaped both industry practices and regulatory responses. Particular attention is given to recent efforts by the US Securities and Exchange Commission (SEC) to increase disclosure and accountability.Design/methodology/approachThis paper integrates empirical findings, industry reports, case studies and legal rulings to examine informational asymmetries in private equity. It introduces a two-level framework distinguishing asymmetries at the fundraising and operational stages. It also evaluates recent SEC rulemaking, enforcement strategies and court challenges.FindingsThe short-term, profit-driven strategies of private equity concentrate market power and frequently disadvantage limited partners, employees and customers. Informational asymmetries allow general partners to exploit opaque governance structures, limiting oversight. While the SEC has sought to enhance transparency through disclosure rules, private equity firms have successfully challenged these regulations in court. Despite setbacks, the SEC continues to enforce accountability through whistleblower programs and existing laws.Originality/valueThis paper highlights the systemic risks associated with private equity and the regulatory challenges in addressing them. It advocates for balanced reforms that maintain private equity’s role in economic growth while ensuring transparency, stakeholder protection and financial stability.

Keywords: Private equity; Financial regulation; SEC; Informational asymmetries; Leveraged buyouts; Systemic risk; ESG (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-03-2025-0070

DOI: 10.1108/JFRC-03-2025-0070

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