Private Equity as an Effective Tool for Capital Raising: Legal Risks and Countermeasures

Research Article
Open access

Private Equity as an Effective Tool for Capital Raising: Legal Risks and Countermeasures

Yu Xiao 1*
  • 1 Tsinghua University    
  • *corresponding author yu-xiao20@mails.tsinghua.edu.cn
Published on 14 September 2023 | https://doi.org/10.54254/2753-7048/8/20230242
LNEP Vol.8
ISSN (Print): 2753-7056
ISSN (Online): 2753-7048
ISBN (Print): 978-1-915371-97-3
ISBN (Online): 978-1-915371-98-0

Abstract

Investors have contributed millions of dollars to private equity funds. These funds are now an indelible part of the world of trading. Private equity has gained popularity over the past ten years, which has sparked a number of discussions about it. Some people argue that private equity contributes a lot to the improvement of corporate governance and increase of the wealth. However, some hold the view that although private equity have some advantages, it has serious problems considering the misaligned interests between managers and investors and high debt ratios. By analyzing different opinions and gathering data about the performance of private equity, this article highlights the evaluation of private equity and LBO, including their unique advantages in mergers and acquisitions, and the potential risks they might bring to the corporation and investors of private equity funds. Also, the article advises some methods to cover the shortages including legislation, investor cooperation and information intermediaries for better use of private equity.

Keywords:

private equity, corporate governance, misaligned interests, remedy

Xiao,Y. (2023). Private Equity as an Effective Tool for Capital Raising: Legal Risks and Countermeasures. Lecture Notes in Education Psychology and Public Media,8,392-399.
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References

[1]. Lerner, J.. (1994) Venture Capital and the Oversight of Privately-held Firms. Journal of Financial Economics, 35(11), 293-316.

[2]. Zhao Lijia. (2021) The Development Status of Private Equity Investment Fund and Its Influence on Social Financing Scale in China. China Management Informationization, 24, 171-172.

[3]. Gregg A. Jarrell, James A. Brickley & Jeffry M. Netter. (1988) The Market for Corporate Control: The Empirical Evidence Since 1980. J. ECON. PERsP, 49(2), 51-52.

[4]. John L. Chapman, Peter G. Klein. (2011) Value Creation in Middle-Market Buyouts: A Transaction-Level Analysis, in Private Equity: Fund Types, Risks and Returns, and Regulation. John Wiley & Sons, Ltd, 229, 245-246.

[5]. Elisabeth de Fontenay. (2019) Private Equity’s Governance Advantage: A Requiem. B.U. L. REV. 99, 1095-1103.

[6]. Francesca Cornelli, Oguzhan Karakas. (2008) Private Equity and Corporate Governance: Do LBOs Have More Effective Boards? Globalization of Alternative Investments Working Papers Volume 1: the Global Economic Impact of Private Equity Report, 1, 65-73.

[7]. Ronald W. Masulis, Randall S.Thomas. (2009) Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance. U. CHI. L. REV. 219(76), 251-252.

[8]. Edward Stringham, Jack Vogel. (2018) The leveraged invisible hand: how private equity enhances the market for corporate control and capitalism itself. EUR. J.L. & ECON. 223(46), 236.

[9]. Zhan Zhenghua, Zhou Juanyan. (2018) Research on the Influence of Private Equity Investment on the Business Performance of Listed SMEs: Empirical Analysis Based on the Data of Small and Medium-sized Board Enterprises. Market Forum, 1, 66-67.

[10]. Jarrod Shobe. (2016) Misaligned Interests in Private Equity. BYU L. REV. 1435, 1444.

[11]. David A. Weisbach, (2008) The Taxation of Carried Interests in Private Equity. VA. L. REV. 94, 715-716.

[12]. William Magnuson. (2018) The Public Cost of Private Equity, MINN. L. REV. 102, 1847-1851.

[13]. Onnig H. Dombalagian. (2011) Regulating Informational Intermediation, AM. U. Bus. L. REV. 1, 58-59.

Cite this article

Xiao,Y. (2023). Private Equity as an Effective Tool for Capital Raising: Legal Risks and Countermeasures. Lecture Notes in Education Psychology and Public Media,8,392-399.

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About volume

Volume title: Proceedings of the International Conference on Social Psychology and Humanity Studies

ISBN：978-1-915371-97-3(Print) / 978-1-915371-98-0(Online)
Editor：Muhammad Idrees, Faisalabad Matilde Lafuente-Lechuga
Conference website: https://www.icsphs.org/
Conference date: 24 April 2023
Series: Lecture Notes in Education Psychology and Public Media
Volume number: Vol.8
ISSN：2753-7048(Print) / 2753-7056(Online)

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References

[1]. Lerner, J.. (1994) Venture Capital and the Oversight of Privately-held Firms. Journal of Financial Economics, 35(11), 293-316.

[2]. Zhao Lijia. (2021) The Development Status of Private Equity Investment Fund and Its Influence on Social Financing Scale in China. China Management Informationization, 24, 171-172.

[3]. Gregg A. Jarrell, James A. Brickley & Jeffry M. Netter. (1988) The Market for Corporate Control: The Empirical Evidence Since 1980. J. ECON. PERsP, 49(2), 51-52.

[4]. John L. Chapman, Peter G. Klein. (2011) Value Creation in Middle-Market Buyouts: A Transaction-Level Analysis, in Private Equity: Fund Types, Risks and Returns, and Regulation. John Wiley & Sons, Ltd, 229, 245-246.

[5]. Elisabeth de Fontenay. (2019) Private Equity’s Governance Advantage: A Requiem. B.U. L. REV. 99, 1095-1103.

[6]. Francesca Cornelli, Oguzhan Karakas. (2008) Private Equity and Corporate Governance: Do LBOs Have More Effective Boards? Globalization of Alternative Investments Working Papers Volume 1: the Global Economic Impact of Private Equity Report, 1, 65-73.

[7]. Ronald W. Masulis, Randall S.Thomas. (2009) Does Private Equity Create Wealth? The Effects of Private Equity and Derivatives on Corporate Governance. U. CHI. L. REV. 219(76), 251-252.

[8]. Edward Stringham, Jack Vogel. (2018) The leveraged invisible hand: how private equity enhances the market for corporate control and capitalism itself. EUR. J.L. & ECON. 223(46), 236.

[9]. Zhan Zhenghua, Zhou Juanyan. (2018) Research on the Influence of Private Equity Investment on the Business Performance of Listed SMEs: Empirical Analysis Based on the Data of Small and Medium-sized Board Enterprises. Market Forum, 1, 66-67.

[10]. Jarrod Shobe. (2016) Misaligned Interests in Private Equity. BYU L. REV. 1435, 1444.

[11]. David A. Weisbach, (2008) The Taxation of Carried Interests in Private Equity. VA. L. REV. 94, 715-716.

[12]. William Magnuson. (2018) The Public Cost of Private Equity, MINN. L. REV. 102, 1847-1851.

[13]. Onnig H. Dombalagian. (2011) Regulating Informational Intermediation, AM. U. Bus. L. REV. 1, 58-59.

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