Institutional Investors and Private Equity

Review of Finance, Vol. 12, Issue 1, pp. 185-219, 2008

44 Pages Posted: 29 Apr 2003

See all articles by Kasper Meisner Nielsen

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance

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Abstract

The entrepreneurial finance literature has highlighted that institutional investors are the main contributors to private equity funds. This paper complements these findings by documenting that institutional investors also invest directly in private equity. A major concern for such investments is the higher agency costs associated with private equity. We show that institutions invest in private firms with governance mechanisms that tend to reduce the expected agency costs and risk of minority expropriation. Good governance mechanisms further allow institutional investors to enjoy the benefits of syndication and thereby reduce idiosyncratic risk. In addition, we show that institutional investments tend to be followed by further improvements in corporate governance and tend to occur in high-growth firms within research and development intensive industries.

Keywords: Institutional investors, Private equity, Closely held corporations, Ownership structure

JEL Classification: G20, G32, G34

Suggested Citation

Nielsen, Kasper Meisner, Institutional Investors and Private Equity. Review of Finance, Vol. 12, Issue 1, pp. 185-219, 2008 , Available at SSRN: https://ssrn.com/abstract=389082 or http://dx.doi.org/10.2139/ssrn.389082

Kasper Meisner Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

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