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Who gets private equity? The role of debt capacity, growth and intangible assets

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  • K. BAEYENS
  • S. MANIGART

    ()

Abstract

While informed private equity (PE) investors screen for the most promising ventures, firms may avoid raising of PE for issues of cost and control. A critical question therefore is: which firms get PE? We consider both supply and demand side arguments to study the characteristics of a sample of 231 firms that did receive PE and compare them to those of a matched sample. Supporting the pecking order theory, we show that firms rely on PE funding when there are no alternatives, i.e. when their debt capacity is limited, due to financial and bankruptcy risk and due to important investments in intangibles. PE investors, from their side, select firms with substantial growth options. Further, firms that receive PE have grown more before the funding event than companies that did not receive PE.

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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/368.

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Length: 31 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/368

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Keywords: financing choice; private equity;

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