A development bank choice of private equity partner: A behavioural game theoretic approach

FAIRCHILD, Richard, IAN, Crawford and ELFAKIR, Adil (2019). A development bank choice of private equity partner: A behavioural game theoretic approach. European journal of finance.

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Official URL: https://www.tandfonline.com/doi/full/10.1080/13518...
Link to published version:: https://doi.org/10.1080/1351847X.2019.1647863

Abstract

We develop a formal game-theoretic analysis of the economic (value-adding abilities) and behavioural factors (empathy, emotional excitement, passion) affecting a development bank’s choice of private-equity partner when investing into emerging market entrepreneurship. Triple-sided moral hazard (TSMH) problems occur in the form of effort-shirking, since the bank, the PE-manager, and the entrepreneur all contribute to value-creation. The bank’s investment choices are crucially affected by a) the relative abilities and the potential level of empathy, excitement and passion that may be generated between a PE-manager and an entrepreneur, and b) the personal emotional attachment that the bank develops towards a PE. The severity of TSMH increases inefficiencies in decision-making. Finally, we consider, in addition to political risk mitigation, an additional impact that the bank may have on PE/E value-creation: the bank may have a coaching/mentoring role. Our analysis has implications for academics and practitioners alike.

Item Type: Article
Uncontrolled Keywords: 1502 Banking, Finance and Investment; Finance
Identification Number: https://doi.org/10.1080/1351847X.2019.1647863
SWORD Depositor: Symplectic Elements
Depositing User: Symplectic Elements
Date Deposited: 08 Aug 2019 13:22
Last Modified: 19 Aug 2019 10:45
URI: http://shura.shu.ac.uk/id/eprint/24971

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