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Pay Now or Pay Later?: The Economics within the Private Equity Partnership

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  • Victoria Ivashina
  • Josh Lerner

Abstract

The economics of partnerships have been of enduring interest to economists, but many issues regarding intergenerational conflicts and their impact on the continuity of these organizations remain unclear. We examine 717 private equity partnerships, and show that (a) the allocation of fund economics to individual partners is divorced from past success as an investor, being instead critically driven by status as a founder, (b) the underprovision of carried interest and ownership—and inequality in fund economics more generally—leads to the departures of senior partners, and (c) the departures of senior partners have negative effects on the ability of funds to raise additional capital.

Suggested Citation

  • Victoria Ivashina & Josh Lerner, 2016. "Pay Now or Pay Later?: The Economics within the Private Equity Partnership," NBER Working Papers 22660, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22660
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    Cited by:

    1. Bhanot, Karan & Kadapakkam, Palani-Rajan, 2022. "Pay for performance, partnership success, and the internal organization of venture capital firms," Journal of Corporate Finance, Elsevier, vol. 75(C).
    2. Jelic, Ranko & Zhou, Dan & Ahmad, Wasim, 2021. "Do stressed PE firms misbehave?," Journal of Corporate Finance, Elsevier, vol. 66(C).
    3. Iheanachor, Nkemdilim & Umukoro, Immanuel, 2022. "Partnerships in digital financial services: An exploratory study of providers in an emerging market," Journal of Business Research, Elsevier, vol. 152(C), pages 425-435.
    4. Dyaran Bansraj & Han Smit & Vadym Volosovych, 2020. "Can Private Equity Funds Act as Strategic Buyers? Evidence from Buy-and-Build Strategies," Tinbergen Institute Discussion Papers 20-041/IV, Tinbergen Institute.
    5. Ewens, Michael, 2022. "Race and Gender in Entrepreneurial Finance," SocArXiv djf8z, Center for Open Science.

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    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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