Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129062
Authors: 
Bienz, Carsten
Thorburn, Karin
Walz, Uwe
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper Series 126
Abstract: 
Private equity fund managers are typically required to invest their own money alongside the fund. We examine how this coinvestment affects the acquisition strategy of leveraged buyout funds. In a simple model, where the investment and capital structure decisions are made simultaneously, we show that a higher coinvestment induces managers to chose less risky firms and use more leverage. We test these predictions in a unique sample of private equity investments in Norway, where the fund manager's taxable wealth is publicly available. Consistent with the model, portfolio company risk decreases and leverage ratios increase with the coinvestment fraction of the manager's wealth. Moreover, funds requiring a relatively high coinvestment tend to spread its capital over a larger number of portfolio firms, consistent with a more conservative investment policy.
Subjects: 
private equity
leveraged buyouts
incentives
coinvestment
risk taking
wealth
JEL: 
D86
G12
G31
G32
G34
Document Type: 
Working Paper

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