Neue Publikation in Journal of Financial Intermediation: Fund ownership, wealth, and risk-taking: Evidence on private equity managers
15.02.2023
Carsten Bienz, Karin S. Thorburn, Uwe Walz, 2023, Journal of Financial Intermediation [published online: 14. February 2023]
Abstract:
Private equity (PE) managers are required to invest their own money in the funds they manage. We examine the incentive effects of this ownership on the delegated acquisition decision. A simple model shows that PE managers select less risky firms and use more debt, the higher their ownership. We test these predictions for a sample of Norwegian PE funds, using managers’ wealth to capture their relative risk aversion. As predicted, the target company’s cash-flow risk decreases and leverage increases with the manager’s ownership scaled by wealth. Moreover, the overall portfolio risk decreases with ownership, mitigating widespread concerns about excessive risk-taking.