Related literature and previous research
The institutionalization of PE began only after World War II (Pratt 1988). The first research papers on PE were published in the late seventies. However, systematic research did not accelerate until the mid-nineties when larger data sets became available to researchers. Most of the articles can be classified into two broad groups. The first tries to answer the question how PE firms choose, structure, and manage their investments. A special focus in this field has been drawn on the various types of information asymmetries and principal agent problems which are inherent in PE investing, and on the potential solutions the different parties can use to solve these conflicts. The second group of articles aims at quantifying and explaining the performance of PE investments. One major objective of this stream of literature is to compare the performance of PE investments to the performance of public markets.
KeywordsExcess Return Private Equity Idiosyncratic Risk Public Market Portfolio Company
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- 6.A third group of articles studies the returns of publicly traded PE vehicles, which will not be further discussed in the scope of this thesis. For a recent study on publicly traded PE vehicles compare Zimmerman, Bilo, Christiophers & Degosciu (2005).Google Scholar
- 7.The study of Cochrane was again published in 2005 in the Journal of Financial Economics (Cochrane 2005).Google Scholar
- 11.The paper was again published in 2005 in The Journal of Finance (Kaplan & Schoar 2005).Google Scholar
- 13.Labour-Sponsored Venture Capital Companies (LSVCC) are unique to the Canadian VC industry. Ayayi (2002) provides the following definition for LSVCC: “Labour sponsored VC corporations are special corporations designed primarily to provide VC to and promote investment in Canadian SMEs whose shares are not publicly traded. The funds are capitalized by a large number of individual shareholders whose incentive to invest is encouraged by the provision of Canadian federal and provincial tax credits in exchange for committing their capital for eight years to inherently risky SMEs.”Google Scholar
- 14.The data set was constructed and first used by Cochrane (2001).Google Scholar