Private equity entities and conglomerates: what are the differences?
AbstractWe compare the characteristics of conglomerates and private equity entities. This is done by examining the differences among their business models. We analyze the relations of the two entity types to their investors on the one hand and to their investments on the other hand. The distinguishing characteristic of private equity entities is that they pursue a stand-alone-perspective with their investment policies, meaning that they treat each investment separately. Therefore, various linkages that exist in conglomerates do not occur in private equity entities. We describe these linkages in detail. We further argue that because of the lack of these linkages in private equity entities the shareholders and debtholders of a private equity entity and its portfolio companies are not faced with the following risks that are specific for a conglomerate: the asset shifting risk, the intra-group profit risk and the capital structure risk. Finally, we define crucial evaluation criteria for identifying a private equity entity and develop a way how regulators and other persons concerned with such a task could do so. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München in its series CEFS Working Paper Series with number 2008-06.
Date of creation: 2008
Date of revision:
private equity; conglomerates; investment companies;
Find related papers by JEL classification:
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gompers, Paul & Lerner, Josh, 1996. "The Use of Covenants: An Empirical Analysis of Venture Partnership Agreements," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 463-98, October.
- Stewart C. Myers, 1999. "Financial architecture," European Financial Management, European Financial Management Association, vol. 5(2), pages 133-141.
- Steven N. Kaplan & Per Strömberg, 2000.
"Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts,"
CRSP working papers
513, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Steven N. Kaplan & Per Stromberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 281-315, 04.
- Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
- Kaplan, Steven & Strömberg, Per Johan, 2000. "Financial Contracting Theory Meets The Real World: An Empirical Analysis Of Venture Capital Contracts," CEPR Discussion Papers 2421, C.E.P.R. Discussion Papers.
- Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
- Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
- Berger, Philip G. & Ofek, Eli, 1995. "Diversification's effect on firm value," Journal of Financial Economics, Elsevier, vol. 37(1), pages 39-65, January.
- Bottazzi, L. & Da Rin, M. & Hellmann, T., 2004. "The changing face of the European venture capital industry: Facts and analysis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3106559, Tilburg University.
- Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.