Thumbnail - Request a copy

Optimal Carried Interest: Adverse Selection in Islamic and Conventional Venture Capital and Private Equity Funds

mehri; Hassan, M. Kabir; Jouaber, Kaouther; Merhri, M. (2017), Optimal Carried Interest: Adverse Selection in Islamic and Conventional Venture Capital and Private Equity Funds, Emerging Markets Finance and Trade, 53, 7, p. 1458-1476. 10.1080/1540496X.2016.1166424

Type
Article accepté pour publication ou publié
Date
2017
Journal name
Emerging Markets Finance and Trade
Volume
53
Number
7
Publisher
Taylor & Francis
Pages
1458-1476
Publication identifier
Metadata
Show full item record
Author(s)
mehri
Dauphine Recherches en Management [DRM]
Institut de recherches sur la catalyse et l'environnement de Lyon [IRCELYON]
Laboratoire Informatique, Image et Interaction - EA 2118 [L3I]
Institut Lumière Matière [Villeurbanne] [ILM]
Institut de Recherche en Informatique et Systèmes Aléatoires [IRISA]
Laboratory of Advanced Technology and Intelligent Systems [LATIS]
Hassan, M. Kabir
Jouaber, Kaouther
Dauphine Recherches en Management [DRM]
Merhri, M.
Abstract (EN)
In an optimal carried interest model with adverse selection, the optimal profit-loss sharing ratio (PSR) explains how the risk aversion of the two parties can affect their bargaining powers by allowing investors to detect the true risk aversion of fund managers and not their true skills. The higher the management fee, the higher is the PSR. Our simulation exercise shows that when the fund manager is more risk averse than the investor for a higher invested capital and weaker expected net profit, the optimal negotiated profit-sharing ratio will be higher.
Subjects / Keywords
Adverse selection; Optimal compensation; Profit-sharing ration; Risk aversion; Hidden skill
JEL
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies