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Value creation in the Private Equity industry

  • Private equity (PE) firms are investment firms that acquire equity shares in companies. The goal of PE firms is to exit the investment after few years with a substantial increase in value. PE firms often claim to outperform the market, i.e. to create alpha. The overall aim of this paper is to unravel the mystery of value creation in the PE industry. First, the author presents a conceptual framework for value creation in the PE industry based on a multiple valuation model that breaks down value creation into different elements. Second, the paper evaluates whether PE firms really create value by analysing and combining results from prior empirical studies based on the conceptual framework. The results show that existing empirical evidence is mixed but that there is indeed a tendency toward a positive evidence that PE firms create economic value in average. However, there are methodological difficulties in measuring the value creation and studies are often subject to bias. Finally, it is pointed out that the question whether PE firms really create value has to be viewed from different perspectives such as the perspective of the PE firm, the investors and the portfolio companies.

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Name:Schlegel, Dennis
Erschienen in:International journal of management cases
Publisher:Pallas Press
Place of publication:Cheltenham
Document Type:Article
Year of Publication:2019
Tag:Private Equity; investments; multiple arbitrage; value creation; value levers
First Page:5
Last Page:16
Dewey Decimal Classification:650 Management
Open Access:Ja
Licence (German):License Logo  Open Access