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Pricing companies: Ethno-accounting of private equity activity

Published online by Cambridge University Press:  09 November 2023

Marlène Benquet
Marlène Benquet*
Affiliation:
Paris Dauphine University, France
*
Corresponding author: Marlène Benquet, CNRS, IRISSO, Paris Dauphine, Université Paris Sciences et Lettres. Email: [email protected].
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Abstract

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How do private equity firms decide on a fair price for a business? Drawing on 76 semi-structured interviews, this article contributes to the sociology of finance and valuation studies by showing that pricing companies is not just a valuation operation but also a capital-repartition issue. In so doing, it shows how concrete, local pricing methods contribute to the financialisation of the economy through the creation of a new capital accumulation centre. The article's ethno-accounting approach describes three pricing steps: first, the capital access rules applicable to the private equity firm members (the price rationale); second, the expectations about the capital that can be transferred from the business to the private equity firm (the theoretical price level); and third, the transaction participant coordination mechanisms (culminating in the actual price). This description of the practices and concepts inherent in business valuation sidesteps the traditional divide between price formation in constructivist concepts of value as well as price discovery in substantivist concepts of value. Instead, value is defined as the expectation of a transfer of capital from the productive sphere to the private equity firm.

Keywords

Private equityethno-accountingaccumulation centrepricing companiesfinancial evaluation
Type
Article
Information
Finance and Society , Volume 5 , Issue 2 , 2019 , pp. 145 - 164
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits noncommercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
© 2019 The Author(s)

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