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Institutional Investors and Private Equity

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  • Kasper Meisner Nielsen
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    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. Copyright 2008, Oxford University Press.

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    Bibliographic Info

    Article provided by European Finance Association in its journal Review of Finance.

    Volume (Year): 12 (2008)
    Issue (Month): 1 ()
    Pages: 185-219

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    Handle: RePEc:oup:revfin:v:12:y:2008:i:1:p:185-219

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    Cited by:
    1. Cumming, Douglas & Zambelli, Simona, 2013. "Private equity performance under extreme regulation," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1508-1523.

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