Private Equity Entities and Conglomerates: What are the Differences?

We compare the characteristics of conglomerates and private equity entities. This is done by examining the differences among their business models. We analyze the relations of the two entity types to their investors on the one hand and to their investments on the other hand. The distinguishing characteristic of private equity entities is that they pursue a stand-alone-perspective with their investment policies, meaning that they treat each investment separately. Therefore, various linkages that exist in conglomerates do not occur in private equity entities. We describe these linkages in detail. We further argue that because of the lack of these linkages in private equity entities the shareholders and debtholders of a private equity entity and its portfolio companies are not faced with the following risks that are specific for a conglomerate: the asset shifting risk, the intra-group profit risk and the capital structure risk. Finally, we define crucial evaluation criteria for identifying a private equity entity and develop a way how regulators and other persons concerned with such a task could do so

Accounting and the business economics tradition in Germany

From the German point of view, accounting is a very important part of business economics. However, in order to understand the theoretical development of accounting in Germany during the twentieth century, it is necessary to identify the influences of the social, economic and legal environment on business economics in general and accounting in particular. Much business economics has emphasized microeconomic theory, but this ignores the problems of organization, and the institutional aspects of the business world. Financial accounting in particular cannot be understood in Germany without reference to legal rules and tradition. Although theorizing about accounting may have been the main root of the business economics tradition in Germany, other aspects of business economics have developed, and it has not been possible to construct a common theoretical foundation covering all aspects of business economics. Hence, it is necessary to study the development of German accounting theory and practice on its own terms.