Value maximization through fund raising and fund retirement: evidence from globally performing private equity companies

Abstract

Abstract The companies across the world achieve value maximization of their respective companies by generating profits and/or capitalization/recapitalization. The private equity fund companies achieve value maximization by investing in unlisted high growth companies and/or capitalization/recapitalization. The private equity funds like traditional companies can maximize value by capitalization and recapitalization. The private equity funds capitalize and recapitalize by raising funds and retiring funds in the form of debt as well as equity. The purpose of study was to determine whether private equity funds maximize value by capitalization and/or recapitalization. The dynamic panel data analysis involving systems generalized method of moments as well as panel data analysis were used to determine the impact on total enterprise value. The comparative analysis was due to the fact that dynamic panel data takes into consideration lagged values of dependent variable whereas there is no such case in panel data. The dynamic panel data results showed that total enterprise value was indifferent to total equity raised, debt induced, debt retired and stock buyback. The panel data results showed that total enterprise value was highly positively influenced by debt retired and stock buyback. The research implications for investors and researchers were that the lagged values of total enterprise value don’t influence the future values and private equity funds do stock buyback and induce debt to maximize value of their respective companies.