Returns to private equity: idiosyncratic risk does matter!
AbstractOwners of private companies often invest a substantial share of their net worth in one company, which exposes them to idiosyncratic risk. For US companies we investigate whether owners require compensation for lack of diversification in the form of higher returns to equity. Exposure to idiosyncratic risk is measured as the share of the owner’s net worth invested in the company. Equity returns are measured as the earnings rate and as capital gains. For both returns measures we find a positive and significant influence of exposure to idiosyncratic risk. This paper improves our understanding of returns to private equity. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 04-29 [rev.3].
Date of creation: 2009
Date of revision:
returns to private equity; exposure to idiosyncratic risk; private companies;
Other versions of this item:
- Elisabeth Mueller, 2010. "Returns to Private Equity - Idiosyncratic Risk Does Matter!," Review of Finance, European Finance Association, European Finance Association, vol. 15(3), pages 545-574.
- Müller, Elisabeth, 2007. "Returns to Private Equity: Idiosyncratic Risk Does Matter!," ZEW Discussion Papers, ZEW - Zentrum fÃ¼r EuropÃ¤ische Wirtschaftsforschung / Center for European Economic Research 04-29 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Müller, Elisabeth, 2009. "Returns to private equity: idiosyncratic risk does matter!," ZEW Discussion Papers, ZEW - Zentrum fÃ¼r EuropÃ¤ische Wirtschaftsforschung / Center for European Economic Research 04-29 [rev.2], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-05 (All new papers)
- NEP-BAN-2010-02-05 (Banking)
- NEP-CFN-2010-02-05 (Corporate Finance)
- NEP-RMG-2010-02-05 (Risk Management)
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