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- Title
Giants at the Gate: Investment Returns and Diseconomies of Scale in Private Equity.
- Authors
Lopez-de-Silanes, Florencio; Phalippou, Ludovic; Gottschalg, Oliver
- Abstract
We document the wide dispersion of private equity investment returns and examine performance determinants using a newly constructed database of 7,500 investments worldwide. One in 10 investments does not return any money, whereas 1 in 4 has an internal rate of return (IRR) above 50%. Quick flips are associated with the highest returns. Performance does not appear scalable: Investments held by private equity firms in periods with a high number of simultaneous investments underperform substantially. Results are consistent with the theoretical literature on organizational diseconomies linked to firm structure. Private equity firms’ actions do not appear to be mechanical or easily scalable.
- Subjects
INTERNAL rate of return; DISECONOMIES of scale; PRIVATE equity; ORGANIZATIONAL performance; BUSINESS performance measurement; PRIVATE equity funds
- Publication
Journal of Financial & Quantitative Analysis, 2015, Vol 50, Issue 3, p377
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109015000113