Are Novice Private Equity Funds Risk-Takers? Evidence From a Comparison With Established Funds

Giot, Pierre, Hege, Ulrich and Schwienbacher, Armin (2014) Are Novice Private Equity Funds Risk-Takers? Evidence From a Comparison With Established Funds. Journal of Corporate Finance, 27. pp. 55-71.

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Official URL: http://tse-fr.eu/pub/30038

Abstract

This paper explores whether private equity firms that are new to the industry take excessive risks relative to funds from established firms. We use differences between the implicit incentives of managers of experienced and of novice funds as identification strategy. We find that novice funds invest more slowly than experienced funds, contradicting the risk-taking hypothesis. However, the size of their investments, in value and as fraction of fund size, is larger; this could be consistent with risk-shifting by novice funds but also with alternative hypotheses. We find that the size difference increases over time and is absent from buyout investments. We also find that novice funds tend to underperform most dramatically for early large investments, and that the size of their investments increases after a first successful exit. These and other findings are in conflict with the excessive risk-taking hypothesis, but largely consistent with alternative explanations that emphasize differences in expertise.

Item Type: Article
Language: English
Date: August 2014
Refereed: Yes
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 27 Apr 2016 08:29
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:30038
URI: http://publications.ut-capitole.fr/id/eprint/19336

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