The Agency Costs of Private Equity: Why Do Limited Partners Still Invest?
This paper examines the private equity (PE) corporate governance model by bringing together insights from legal scholarship, management studies, finance economics, and government data. While the PE business model emerged to solve the principal–agent conflicts found in large publicly traded corporati...
Saved in:
Published in | Academy of Management perspectives Vol. 35; no. 1; pp. 45 - 68 |
---|---|
Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Briarcliff Manor
Academy of Management
01.02.2021
|
Subjects | |
Online Access | Get full text |
Cover
Loading…
Abstract | This paper examines the private equity (PE) corporate governance model by bringing together insights from legal scholarship, management studies, finance economics, and government data. While the PE business model emerged to solve the principal–agent conflicts found in large publicly traded corporations, we argue that it creates principal–agent conflicts higher up the investment chain-between the limited partner investors (LPs), or principals in PE funds, and the general partners (GPs), or agents who administer those funds. We draw on and extend multiple agency theory and examine three types of asymmetries that may undermine the interest alignment of GPs and LPs: asymmetries of power, information, and incentives. Using this framework, we consider the economic outcomes for stakeholders, whether solutions exist for better interest alignment, and the implications for future research and policy development. |
---|---|
AbstractList | This paper examines the private equity (PE) corporate governance model by bringing together insights from legal scholarship, management studies, finance economics, and government data. While the PE business model emerged to solve the principal–agent conflicts found in large publicly traded corporations, we argue that it creates principal–agent conflicts higher up the investment chain-between the limited partner investors (LPs), or principals in PE funds, and the general partners (GPs), or agents who administer those funds. We draw on and extend multiple agency theory and examine three types of asymmetries that may undermine the interest alignment of GPs and LPs: asymmetries of power, information, and incentives. Using this framework, we consider the economic outcomes for stakeholders, whether solutions exist for better interest alignment, and the implications for future research and policy development. |
Author | Appelbaum, Eileen Batt, Rosemary |
Author_xml | – sequence: 1 givenname: Rosemary surname: Batt fullname: Batt, Rosemary organization: ILR School, Cornell University – sequence: 2 givenname: Eileen surname: Appelbaum fullname: Appelbaum, Eileen organization: Center for Economic and Policy Research |
BookMark | eNotkE1rAjEYhEOxULU99h7oeW2y-dr0UsRqKwgVaukxrJs3dUU3mkRh_31X7GVmDsMMPAPUa3wDCD1SMhJciudyfxjlhBYjQiS5QX2qOcu4yHWvy0IUmSYFuUODGLeEcM6F6qP5agN4_AtN1eKJjyli7_Ay1OcyAZ4eT3VqX_DPpsVvHi_qfZ3A4mUZUgMh4q9U73Z43pwhptd7dOvKXYSHfx-i79l0NfnIFp_v88l4kVW5VinjypYEqHV5UVkAVSjLlQCn11Iq6ZSQylnKJF_nTGgOVlJRgNTcEVCcMTZET9fdQ_DHU_dstv4Umu7S5FwzwQjpZIiya6sKPsYAzhxCvS9DaygxF1qmo2UutMyFFvsDL_hdUw |
CitedBy_id | crossref_primary_10_5465_amp_2021_0120 crossref_primary_10_1177_27551938231221509 crossref_primary_10_1007_s11187_022_00688_5 crossref_primary_10_1093_ppar_prad001 |
Cites_doi | 10.1111/jofi.12154 10.1016/j.jfineco.2018.10.011 10.1093/acprof:oso/9780199653584.001.0001 10.1093/rfs/hhv046 10.5465/amp.2012.0130 10.1093/icc/5.2.239 10.1017/S0022109012000221 10.5465/amp.2012.0131 10.1016/0304-405X(76)90026-X 10.2469/faj.v72.n4.1 10.5465/amp.2012.0129 10.1093/rfs/hhq020 10.1016/j.jfineco.2014.08.002 10.1111/j.1540-6261.2005.00780.x 10.1093/rfs/hhr024 10.4159/9780674919464 10.1016/j.jfineco.2010.02.001 10.1017/CBO9780511581687 10.1016/j.jfineco.2016.01.033 10.1111/jbfa.12042 10.1093/rof/rft002 10.1093/rfs/hhr141 10.5465/amj.2008.31767256 |
ContentType | Journal Article |
Copyright | Copyright Academy of Management Feb 2021 |
Copyright_xml | – notice: Copyright Academy of Management Feb 2021 |
DBID | AAYXX CITATION 8BJ FQK JBE |
DOI | 10.5465/amp.2018.0060 |
DatabaseName | CrossRef International Bibliography of the Social Sciences (IBSS) International Bibliography of the Social Sciences International Bibliography of the Social Sciences |
DatabaseTitle | CrossRef International Bibliography of the Social Sciences (IBSS) |
DatabaseTitleList | International Bibliography of the Social Sciences (IBSS) |
DeliveryMethod | fulltext_linktorsrc |
Discipline | Business |
EISSN | 1943-4529 |
EndPage | 68 |
ExternalDocumentID | 10_5465_amp_2018_0060 |
GroupedDBID | -~X 23M 2AX 3V. 4R4 6J9 7WY 8FI 8H~ 8R4 8R5 8VB 9M8 AAHCP AAIKC AAMNW AAYXX ABBHK ABECW ABIVO ABKVW ABTAH ABXSQ ABYRZ ABYYQ ACHQT ACNXV ACUHF ACVFL ACXJH ADACV ADBBV ADGDI ADLEJ ADPTO ADULT AEGXH AEMOZ AEUPB AFKRA AHAJD AHEXP AKVCP ALMA_UNASSIGNED_HOLDINGS APTMU AQUVI AS~ AZRUE BHNFS BKOMP BVXVI CBXGM CCPQU CHNMF CITATION E.L EBA EBE EBO EBR EBS EBU EHE EJD GPZZG H13 HECYW HVGLF IPSME JAAYA JAB JBMMH JBU JENOY JHFFW JKQEH JLEZI JLXEF JPL JPPEU JSODD JST K1G K60 K6~ M0T MAG OHT PQBIZ PQBZA PQQKQ PROAC QWB RNS SA0 TH9 TN5 UKHRP UKR UPT VQA WH7 YV5 ZE2 ZL0 ZY4 ~A~ 8BJ FQK JBE |
ID | FETCH-LOGICAL-c297t-47da0e1df28cdee787d475ef9b6676f7567fd1364b23594ed6158e694f0e74333 |
ISSN | 1558-9080 |
IngestDate | Thu Oct 10 19:57:26 EDT 2024 Fri Dec 06 05:49:01 EST 2024 |
IsPeerReviewed | true |
IsScholarly | true |
Issue | 1 |
Language | English |
LinkModel | OpenURL |
MergedId | FETCHMERGED-LOGICAL-c297t-47da0e1df28cdee787d475ef9b6676f7567fd1364b23594ed6158e694f0e74333 |
PQID | 2493530035 |
PQPubID | 29357 |
PageCount | 24 |
ParticipantIDs | proquest_journals_2493530035 crossref_primary_10_5465_amp_2018_0060 |
PublicationCentury | 2000 |
PublicationDate | 2021-02-01 |
PublicationDateYYYYMMDD | 2021-02-01 |
PublicationDate_xml | – month: 02 year: 2021 text: 2021-02-01 day: 01 |
PublicationDecade | 2020 |
PublicationPlace | Briarcliff Manor |
PublicationPlace_xml | – name: Briarcliff Manor |
PublicationTitle | Academy of Management perspectives |
PublicationYear | 2021 |
Publisher | Academy of Management |
Publisher_xml | – name: Academy of Management |
References | b10 b11 Wilson N. (b99) 2018 b36 Harris L. (b32) 2010; 35 Webber D. (b94) 2018 Arcot S. (b9) 2015; 115 Appelbaum E. (b7) 2016 Webber D. (b93) 2014; 89 PitchBook (b70) 2018 Hirschman A. O. (b34) 1970 Gospel H. (b31) 2014 Shobe J. (b86) 2016 Demiroglu C. (b106) 2010; 96 PitchBook (b72) 2018 Ivashina V. (b40) 2011; 24 Masulis R. (b54) 2009; 76 Jensen M. C. (b43) 1976; 3 Appelbaum E. (b6) 2014 Harris R. S. (b107) 2014; 69 Metrick A. (b56) 2010; 23 Jegadeesh N. (b41) 2015; 28 Braun R. (b18) 2017; 123 b23 Kelleher J. C. (b46) 2004 Ribstein L. E. (b78) 2009; 76 Baker G. P. (b14) 1998 Bowden A. (b17) 2014 b29 Wilson N. (b100) 2013; 40 Appelbaum E. (b8) 2018 Magnuson M. (b110) 2018; 102 Ahlers O. (b3) 2018 Chung J. W. (b22) 2012; 25 Phalippou L. (b63) 2014; 18 Brown G. W. (b19) 2018; 132 Driessen J. (b27) 2012; 47 PitchBook (b69) 2018 PitchBook (b71) 2018 Kaplan S. N. (b44) 2005; 60 Baron J. N. (b15) 1996; 5 PitchBook (b66) 2016 Spindler J. C. (b115) 2009; 311 b101 Hoskisson R. E. (b35) 2013 L’Her J. (b47) 2016; 72 |
References_xml | – volume: 69 start-page: 1851 issue: 5 year: 2014 ident: b107 publication-title: Journal of Finance doi: 10.1111/jofi.12154 contributor: fullname: Harris R. S. – year: 2016 ident: b86 publication-title: Brigham Young University Law Review contributor: fullname: Shobe J. – volume: 132 start-page: 267 issue: 2 year: 2018 ident: b19 publication-title: Journal of Financial Economics doi: 10.1016/j.jfineco.2018.10.011 contributor: fullname: Brown G. W. – start-page: 530 volume-title: The Routledge companion to management buyouts year: 2018 ident: b99 contributor: fullname: Wilson N. – volume-title: PitchBook 1Q 2016 Global PE & VC benchmarking & fund performance report year: 2016 ident: b66 contributor: fullname: PitchBook – volume-title: Financialisation, new investment funds, and labour: An international comparison year: 2014 ident: b31 doi: 10.1093/acprof:oso/9780199653584.001.0001 contributor: fullname: Gospel H. – volume: 35 start-page: 259 year: 2010 ident: b32 publication-title: Delaware Journal of Corporate Law contributor: fullname: Harris L. – volume: 28 start-page: 3269 issue: 12 year: 2015 ident: b41 publication-title: Review of Financial Studies doi: 10.1093/rfs/hhv046 contributor: fullname: Jegadeesh N. – ident: b11 doi: 10.5465/amp.2012.0130 – volume-title: Institutional investor survey—2018 annual year: 2018 ident: b72 contributor: fullname: PitchBook – volume-title: The Oxford handbook of corporate governance year: 2013 ident: b35 contributor: fullname: Hoskisson R. E. – volume: 5 start-page: 239 issue: 2 year: 1996 ident: b15 publication-title: Industrial and Corporate Change doi: 10.1093/icc/5.2.239 contributor: fullname: Baron J. N. – volume-title: Global PE deal multiples—2018 annual year: 2018 ident: b71 contributor: fullname: PitchBook – volume: 102 start-page: 1847 issue: 5 year: 2018 ident: b110 publication-title: Minnesota Law Review contributor: fullname: Magnuson M. – volume: 47 start-page: 511 issue: 3 year: 2012 ident: b27 publication-title: Journal of Financial and Quantitative Analysis doi: 10.1017/S0022109012000221 contributor: fullname: Driessen J. – ident: b36 doi: 10.5465/amp.2012.0131 – volume-title: Exit, voice, and loyalty: Responses to decline in firms, organizations, and states year: 1970 ident: b34 contributor: fullname: Hirschman A. O. – volume: 3 start-page: 305 issue: 4 year: 1976 ident: b43 publication-title: Journal of Financial Economics doi: 10.1016/0304-405X(76)90026-X contributor: fullname: Jensen M. C. – volume: 76 start-page: 219 issue: 1 year: 2009 ident: b54 publication-title: University of Chicago Law Review. University of Chicago. Law School contributor: fullname: Masulis R. – volume: 89 start-page: 2106 issue: 6 year: 2014 ident: b93 publication-title: New York Law Review contributor: fullname: Webber D. – volume-title: The Routledge companion to management buyouts year: 2018 ident: b8 contributor: fullname: Appelbaum E. – volume: 72 start-page: 1 issue: 4 year: 2016 ident: b47 publication-title: Financial Analysts Journal doi: 10.2469/faj.v72.n4.1 contributor: fullname: L’Her J. – volume-title: Private equity at work: When Wall Street manages main street year: 2014 ident: b6 contributor: fullname: Appelbaum E. – volume-title: Internal rate of return: A cautionary tale year: 2004 ident: b46 contributor: fullname: Kelleher J. C. – ident: b101 doi: 10.5465/amp.2012.0129 – start-page: 147 volume-title: The Routledge companion to management buyouts year: 2018 ident: b3 contributor: fullname: Ahlers O. – volume: 76 start-page: 289 issue: 1 year: 2009 ident: b78 publication-title: University of Chicago Law Review. University of Chicago. Law School contributor: fullname: Ribstein L. E. – volume: 23 start-page: 2303 issue: 6 year: 2010 ident: b56 publication-title: Review of Financial Studies doi: 10.1093/rfs/hhq020 contributor: fullname: Metrick A. – volume: 115 start-page: 102 issue: 1 year: 2015 ident: b9 publication-title: Journal of Financial Economics doi: 10.1016/j.jfineco.2014.08.002 contributor: fullname: Arcot S. – volume: 60 start-page: 1791 issue: 4 year: 2005 ident: b44 publication-title: Journal of Finance doi: 10.1111/j.1540-6261.2005.00780.x contributor: fullname: Kaplan S. N. – volume: 24 start-page: 2462 issue: 7 year: 2011 ident: b40 publication-title: Review of Financial Studies doi: 10.1093/rfs/hhr024 contributor: fullname: Ivashina V. – volume-title: The rise of the working-class shareholder: Labor’s last best weapon year: 2018 ident: b94 doi: 10.4159/9780674919464 contributor: fullname: Webber D. – ident: b23 – volume: 96 start-page: 306 issue: 2 year: 2010 ident: b106 publication-title: Journal of Financial Economics doi: 10.1016/j.jfineco.2010.02.001 contributor: fullname: Demiroglu C. – ident: b29 – volume: 311 start-page: 332 year: 2009 ident: b115 publication-title: University of Chicago Law Review contributor: fullname: Spindler J. C. – volume-title: The new financial capitalists: Kohlberg Kravis Roberts and the creation of corporate value year: 1998 ident: b14 doi: 10.1017/CBO9780511581687 contributor: fullname: Baker G. P. – volume: 123 start-page: 273 issue: 2 year: 2017 ident: b18 publication-title: Journal of Financial Economics doi: 10.1016/j.jfineco.2016.01.033 contributor: fullname: Braun R. – volume-title: Spreading sunshine in private equity. Private Fund Compliance Forum 2014, Private Equity International (PEI), New York, NY, May 6 year: 2014 ident: b17 contributor: fullname: Bowden A. – volume-title: Fees, fees and more fees: How private equity abuses its limited partners and U.S. taxpayers year: 2016 ident: b7 contributor: fullname: Appelbaum E. – volume: 40 start-page: 949 issue: 7 year: 2013 ident: b100 publication-title: Journal of Business Finance & Accounting doi: 10.1111/jbfa.12042 contributor: fullname: Wilson N. – volume: 18 start-page: 189 issue: 1 year: 2014 ident: b63 publication-title: Review of Finance doi: 10.1093/rof/rft002 contributor: fullname: Phalippou L. – volume: 25 start-page: 3259 issue: 11 year: 2012 ident: b22 publication-title: Review of Financial Studies doi: 10.1093/rfs/hhr141 contributor: fullname: Chung J. W. – volume-title: USPE breakdownn—2018 annual year: 2018 ident: b69 contributor: fullname: PitchBook – ident: b10 doi: 10.5465/amj.2008.31767256 – volume-title: What are the private markets? A guide to understanding and capitalizing on this fast-growing economic sector year: 2018 ident: b70 contributor: fullname: PitchBook |
SSID | ssj0044457 |
Score | 2.391361 |
Snippet | This paper examines the private equity (PE) corporate governance model by bringing together insights from legal scholarship, management studies, finance... |
SourceID | proquest crossref |
SourceType | Aggregation Database |
StartPage | 45 |
SubjectTerms | Corporate governance Equity Finance Investment Policy making Private equity Stakeholders |
Title | The Agency Costs of Private Equity: Why Do Limited Partners Still Invest? |
URI | https://www.proquest.com/docview/2493530035 |
Volume | 35 |
hasFullText | 1 |
inHoldings | 1 |
isFullTextHit | |
isPrint | |
link | http://utb.summon.serialssolutions.com/2.0.0/link/0/eLvHCXMwnV1LT9tAEF5RkFAvqDwqUh7aA-oFmdretR33ggIEhRYQEkTltvK-BBJNQuIc6K_vjNeLE4Qq6MWKNtLamm88O-ud7xtC9sBPIgnABrnSacAT2KC0i0QHtjChZMpmiUU28sVl2uvzH7fJbdOls2KXlPJA_XmVV_I_qMIY4Ios2Xcg-zwpDMBvwBeugDBc34xxx5Enj4cTV5VxNcZ-ZWa_-zhFwX_Y8P-6e4I82VOZIGcclwOk7V6X9w9eaONFfV-n4Zk09TEoceyJmc3H9cKdLmGHxooF5x1oNDIPsnBdlLv3WLAx-4EhjnxNsneJ1-44GzETiJiha8d0YNxYzhnins-GWadKMudOLmY6OcmXoRybtOM69RtFRSMseE3DZs3y5_S9zrW4OjkV52eXPz-QJVRDxAYK3aO-X44555Xc6_NzOqFVnP7b3OTzicn8ulwlGzefyEq9S6AdB_kqWTCDNbLsSQrr5AyQpw55WiFPh5bWyFOH_HcKuNOTIa1xpx53WuFOHe6HG6R_2r057gV1U4xAxXlWBjzTRWgibeO20sZAvNU8S4zNJVYrw7uVZlZHLOUyZknOjYaUtW3SnNvQQLbI2GeyOBgOzCahTMUaEjhjo0jxtmaySDOuYqZSaaIwty3y1VtEjJz2iYA9I5pOgOkEmk6g6Vpk29tL1K_HRMC-niUMT6q__PvvLfKxcbttsliOp2YHMr1S7lZI_gUH5FOO |
link.rule.ids | 314,780,784,27924,27925 |
linkProvider | EBSCOhost |
openUrl | ctx_ver=Z39.88-2004&ctx_enc=info%3Aofi%2Fenc%3AUTF-8&rfr_id=info%3Asid%2Fsummon.serialssolutions.com&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.atitle=The+Agency+Costs+of+Private+Equity%3A+Why+Do+Limited+Partners+Still+Invest%3F&rft.jtitle=Academy+of+Management+perspectives&rft.au=Batt%2C+Rosemary&rft.au=Appelbaum%2C+Eileen&rft.date=2021-02-01&rft.pub=Academy+of+Management&rft.issn=1558-9080&rft.eissn=1943-4529&rft.volume=35&rft.issue=1&rft.spage=45&rft_id=info:doi/10.5465%2Famp.2018.0060&rft.externalDBID=HAS_PDF_LINK |
thumbnail_l | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/lc.gif&issn=1558-9080&client=summon |
thumbnail_m | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/mc.gif&issn=1558-9080&client=summon |
thumbnail_s | http://covers-cdn.summon.serialssolutions.com/index.aspx?isbn=/sc.gif&issn=1558-9080&client=summon |