Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/225337 
Year of Publication: 
2019
Series/Report no.: 
SAFE Working Paper No. 126
Version Description: 
July 2019
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
We examine the incentive effects of private equity (PE) professionals' ownership in the funds they manage. In a simple model, we show that managers select less risky firms and use more debt financing the higher their ownership. We test these predictions for a sample of PE funds in Norway, where the professionals' private wealth is public. Consistent with the model, firm risk decreases and leverage increases with the manager's ownership in the fund, but largely only when scaled with her wealth. Moreover, the higher the ownership, the smaller is each individual investment, increasing fund diversification. Our results suggest that wealth is of first-order importance when designing incentive contracts requiring PE fund managers to coinvest.
Subjects: 
Private equity
buyouts
incentives
general partner
ownership
risk taking
wealth
JEL: 
D86
G12
G31
G32
G34
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.