Los 42.c

Question 1

What is private equity?

Answer 1

equity issued to institutional investors via private placements

Question 2

What are the characteristics

Answer 2

• Less liquidity because no public market for the shares exists.
• Share price is negotiated between the firm and its investors, not determined in a market.
• More limited firm financial disclosure because there is no government or exchange requirement to do so.
• Lower reporting costs because of less onerous reporting requirements.
• Potentially weaker corporate governance because of reduced reporting requirements and less public scrutiny.
• Greater ability to focus on long-term prospects because there is no public pressure for short-term results.
• Potentially greater return for investors once the firm goes public.