The field of private equity is still very young, and research on the topic is in its infancy. Despite a considerable amount of research in the recent past, so far, there has been no review of research methodology in the field of private equity. This article examines the state of private equity research in the last seven years from the standpoint of existing methodologies. The state of research is assessed by examining the body of literature for research design, research topics, strategies, number of hypothesis testing studies, research methods, data analysis techniques, data sources, regions of focus, and countries of authors. Based on the results of this review, the article provides reflections on the evolution of private equity research over the last seven years and discusses opportunities for future research.

A Review of Research Methodologies in Private Equity: 2005–2011

SINCE ITS INAUGURATION, the 110th Congress and its Democratic majority have been searching for additional revenue to pay for a controversial expansion of the state children's health insurance program (or S-CHIP), increased education subsidies, and costly adjustments to the Alternative Minimum Tax (AMT) To that end, Congress has considered two bills that increase taxes on private equity firms The Baucus-Grassley bill, S 1624, was introduced on June 14, 2007, and would ensure that publicly traded partnerships providing investment advice pay the corporate tax A week later, Ways and Means Chairman Charles Rangel and Congressman Sander Levin introduced HR 2834, which would explicitly treat carried interests as "ordinary income," not capital gains Neither of the bills appeared to be attracting enough support, and so on October 25, Congressman Rangel introduced the controversial Tax Reduction and Reform Act of 2007, HR 3970, which would reduce corporate tax and gradually repeal the AMT, among a host of other changes--all paid for by a new surcharge on high-income earners This bill also included the substantive entirety of Rangel's earlier bill, HR 2834, although it did not incorporate the Senate bill None of these bills had been passed in either chamber, but by December 12, both Senate and House had passed a far more modest tax bill, HR 3996, the Temporary Tax Relief Act of 2007 This latter legislation made no changes to private equity taxation, dealing instead with the routine "patching" of the AMT The fundamental problems highlighted by the original Senate and House bills, however, remain unresolved The usual melodrama has accompanied the bills' proposal Proponents cite the 25 private equity managers whose additional tax under the bills could pay 80,000 New York school teachers for three years (1) Another likens the US income distribution to that which preceded the French Revolution (2) Opponents explain how private equity funds benefit pension funds, (3) while others, including "Magic" Johnson, fear a setback for black rights if private equity funds pay more tax (4) The bills are potentially popular Private equity firms employ few people relative to other industries, and publicity surrounding the large incomes of some fund managers has arisen amid a general disquiet at the supposedly rising level of income inequality in the United States But the bills have academic origins too; a widely cited piece by Professor Victor Fleischer has framed the policy debate (5) Because the bills relate to the application of current tax law, as opposed to a new tax or rate change, the usual tax-change protagonists have been conflicted or absent The Business Roundtable and the Financial Services Forum, for instance, have stood on the sidelines, while current and former treasury secretaries and economics professors have publicly disagreed about the bills (6) Moreover, because the bills are complicated--relating to definitions of income, the tax requirements of different business entities, and the role of capital gains tax--many commentators mistakenly conflate the two bills' provisions But they are actually quite different, regardless of their genesis In short, the Senate bill is about taxing businesses, while the House bill is about taxing people (7) This article discusses the provisions of the two bills from an economic perspective, assuming no prior knowledge of private equity Both bills draw attention to the excessive ambiguity and complexity of the US tax code Private equity loophole? BUSINESSES CAN ORGANIZE themselves in different ways Smaller businesses tend to be sole-traders, larger firms partnerships, and the very largest companies (companies traditionally have a legal identity of their own, meaning owners cannot lose more than they have invested) Most people know of these three broad classes, but probably not the wide range of types within each (8) One of these types is known as a "publicly traded partnership" (PTP), or sometimes as a "master limited partnership …

Adam Creighton

Papers

Taxing Private Equity