Article

Fund Size, Limited Attention, and Private Equity Valuation

Douglas Cumming and Na Dai

in The Oxford Handbook of Private Equity

Published in print March 2012 | ISBN: 9780195391589
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780195391589.013.0016

Series: Oxford Handbooks

 Fund Size, Limited Attention, and Private Equity Valuation

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This article discusses fund size, limited attention, and the valuation of venture capital- and private equity-backed firms. It determines that decreasing performance and distorted valuations are associated with larger private equity funds, and determine that these effects are due to the limited attention of fund managers. Some of the concepts discussed in this article include ordinary least squares (OLS) regressions and portfolio companies. It also shows that the most reputable private equities pay a lower price for portfolio companies of similar quality and that fund size and valuations of portfolio companies have a convex relationship. A relevant positive association between limited attention and valuation is also noted. This article concludes that fund size is generally positively associated with the negotiation power of private equity.

Keywords: fund size; limited attention; venture capital-backed firms; private equity-backed firms; private equity funds; fund managers; portfolio companies; ordinary least squares regressions; negotiation power

Article.  10322 words. 

Subjects: Economics ; Financial Markets ; Industry Studies

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