A Simple Utility Approach to Private Equity Sales
AbstractThe paper examines the liquidity risk of a private equity firm that decides to dispose of a large holding in its portfolio. As the sale takes time, it requires a careful balancing act of the exposure to the fluctuations in the market value of the investment against the large sale-induced price depression. A mean-standard deviation utility framework is an appealing decision tool for optimizing protracted asset dispositions. The firm maximizes the expected profit from the sale strategy net of the price concession minus a penalty function for exposure to the price risk, with the penalty weight related to a loss confidence interval.
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Bibliographic InfoArticle provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance and Business Ventures.
Volume (Year): 8 (2003)
Issue (Month): 1 (Spring)
Private Equity; Utility; Venture Capital;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
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