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on Corporate Finance |
| By: | Frank M. Fossen |
| Abstract: | The empirical finding that entrepreneurs tend to invest a large share of their wealth in their own firms despite comparably low returns and high risk has become known as the private equity premium puzzle. This paper provides evidence supporting the hypothesis that lower risk aversion of entrepreneurs, and not necessarily credit constraints, may explain this puzzle. The analysis is based on a large, representative panel data set for Germany, which provides information on asset portfolios and experimentally validated risk attitudes. The results show that both the ownership probability and the conditional portfolio share of private business equity significantly increase with higher risk tolerance. |
| Keywords: | Entrepreneurship, Private Equity, Investment, Risk Aversion |
| JEL: | G11 G32 L26 J23 D81 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp839&r=cfn |
| By: | Hainz , Christa (University of Munich); Weill , Laurent (Université Robert Schuman, Strasbourg); Godlewski, Christophe (University of Strasbourg) |
| Abstract: | We investigate the impact of bank competition on the use of collateral in loan contracts. We develop a theoretical model incorporating information asymmetries in a spatial competition framework where banks choose between screening the borrower and asking for collateral. We show that presence of collateral is more likely when bank competition is low. We then test this prediction empirically on a sample of bank loans from 70 countries. We estimate logit models where the presence of collateral is regressed on bank competition, measured by the Lerner index. Our empirical tests corroborate the theoretical predictions that bank competition reduces the use of collateral. These findings survive several robustness checks. |
| Keywords: | collateral; bank competition; asymmetric information |
| JEL: | D43 D82 G21 |
| Date: | 2008–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_027&r=cfn |
| By: | Jean Helwege; Sahminan Frank Packer |
| Abstract: | Why do private firms stay private? Empirical evidence on this issue is sparse, as most private firms in the US do not report their financial results. We investigate why private status matters by taking advantage of a unique dataset of large, leveraged private firms with SEC filings. Unlike a number of other studies, we find that neither the existence of growth opportunities, nor the desire of firm founders to diversify, is a principal determinant of the decision whether or not to retain private status. Rather, the existence of private benefits of control appears to serve as the most significant incentive to stay private. Family-controlled firms have significantly lower probabilities of filing for an IPO, while a board structure that grants management relatively more autonomy lowers the probability of an IPO filing as well. Crosssectional analysis of profitability and ex post performance suggests that while private benefits of control may encourage firms to stay private, they do not have detrimental effects on firm efficiency. In contrast, firms controlled by private equity specialists appear to place a low value on control benefits and are likely to go public as a means of cashing out. |
| Keywords: | initial public offering, private benefits of control, private firms, family firms, inside ownership, board composition, private equity, venture capital |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:266&r=cfn |