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Pay now or pay later? The economics within the private equity partnership

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  • Ivashina, Victoria
  • Lerner, Josh

Abstract

The economics of partnerships have been of enduring interest to economists, yet it is not clear what profit sharing within a private partnership should look like. We examine over 700 private equity partnerships and show that the allocation of fund economics to individual partners varies drastically, even among the most senior partners, and appears divorced from past success as an investor, being instead related to status as a founder. A smaller share of carried interest and ownership—and inequality in fund economics more generally—is associated with departures of senior partners which, in turn is negatively related to the funds’ ability to raise additional capital.

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  • Ivashina, Victoria & Lerner, Josh, 2019. "Pay now or pay later? The economics within the private equity partnership," Journal of Financial Economics, Elsevier, vol. 131(1), pages 61-87.
    • Handle: RePEc:eee:jfinec:v:131:y:2019:i:1:p:61-87
    DOI: 10.1016/j.jfineco.2018.07.017
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    Cited by:

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    2. Jelic, Ranko & Zhou, Dan & Ahmad, Wasim, 2021. "Do stressed PE firms misbehave?," Journal of Corporate Finance, Elsevier, vol. 66(C).
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    4. Dyaran Bansraj & Han Smit & Vadym Volosovych, 2020. "Can Private Equity Funds Act as Strategic Buyers? Evidence from Buy-and-Build Strategies," Tinbergen Institute Discussion Papers 20-041/IV, Tinbergen Institute.
    5. Ewens, Michael, 2022. "Race and Gender in Entrepreneurial Finance," SocArXiv djf8z, Center for Open Science.

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    More about this item

    Keywords

    Partnerships; Venture capital; Leveraged buyout;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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