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Private EquityOpportunities and Risks$
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H. Kent Baker, Greg Filbeck, and Halil Kiymaz

Print publication date: 2015

Print ISBN-13: 9780199375875

Published to Oxford Scholarship Online: August 2015

DOI: 10.1093/acprof:oso/9780199375875.001.0001

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Economics of Private Equity

Economics of Private Equity

(p.16) 2 Economics of Private Equity
Private Equity

Shantanu Dutta

Arup Ganguly

Lin Ge

Oxford University Press

One of the most controversial recent debates in finance among politicians, policymakers, financial economists, and the media concerns the contribution of private equity (PE) in society. The PE industry has grown dramatically over the last few decades despite critics challenging the fabric of the economic model by portraying PE companies as heartless, profit-seeking barbarians. This chapter investigates this controversial topic, going beyond just the story-telling to examine the economics and benefits of PE. Overall, PE firms mitigate agency costs between the managers and shareholders, infuse good governance and better management practices, improve operating performances, and create new jobs, enabling value creation for both the investee companies and their investors. Hence, the widely held belief that the PE model is detrimental to the economy might be false.

Keywords:   private equity, agency costs, governance, value creation, profit-seeking, profit-seeking barbarians

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