Underdiversification in Private Companies: Required Returns and Incentive Effects

Arbeitspapier

Owners of private companies are often highly underdiversified which exposes them to idiosyncratic risk. We investigate the consequences of underdiversification at the company level. Information on US companies and their owners is obtained from the Survey of Consumer Finances and the Survey of Small Business Finances. Underdiversification, measured as the share of the owner's net worth invested in the company, has a significant positive relationship with profitability, measured as the return on equity. We identify two causes for this underdiversification effect: higher required returns and higher effort. The results have important consequences for investment decisions at private companies.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ZEW Discussion Papers ; No. 04-29

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Portfolio Choice; Investment Decisions ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Thema: underdiversification ; required returns ; incentives ; private companies ; wealth ; entrepreneurship ; Klein- und Mittelunternehmen ; Unternehmer ; Investition ; Portfolio-Management ; Rentabilität ; Ökonomischer Anreiz ; Schätzung ; Vereinigte Staaten

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Müller, Elisabeth
• Ereignis: Veröffentlichung
• (wer): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (wo): Mannheim
• (wann): 2004

Weitere Informationen

• Handle: http://hdl.handle.net/10419/24054
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ