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  • Article
  • Journal of Financial Economics

What Do Private Equity Firms Say They Do?

By: Paul A. Gompers, Steven N. Kaplan and Vladimir Mukharlyamov
  • Format:Print
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Abstract

We survey 79 private equity investors with combined assets under management (AUM) of over $750 billion about their practices in firm valuation, capital structure, governance, and value creation. Investors rely primarily on internal rate of return (IRR) and multiples to evaluate investments. Their limited partners (LPs) focus more on absolute performance. Capital structure choice is based equally on optimal trade-off and market timing considerations. PE investors anticipate adding value to portfolio companies, with a greater focus on increasing growth than on reducing costs. We also explore how the actions that PE managers say they take group into specific firm strategies and how those strategies are related to firm founder characteristics.

Keywords

Private Equity; Valuation; Capital Structure; Value Creation

Citation

Gompers, Paul A., Steven N. Kaplan, and Vladimir Mukharlyamov. "What Do Private Equity Firms Say They Do?" Journal of Financial Economics 121, no. 3 (September 2016): 449–476.
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About The Author

Paul A. Gompers

Finance
→More Publications

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More from the Authors
  • Failing Just Fine: Assessing Careers of Venture Capital-backed Entrepreneurs via a Non-wage Measure By: Natee Amornsiripanitch, Paul A. Gompers, George Hu, Will Levinson and Vladimir Mukharlyamov
  • Private Equity and COVID-19 By: Paul A. Gompers, Steven N. Kaplan and Vladimir Mukharlyamov
  • Transferable Skills? Founders as Venture Capitalists By: Paul A. Gompers and Vladimir Mukharlyamov
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